Biden home loan lending policy is outrageous

A new Biden administration rule requiring lower home loan fees for riskier debtors, spent for by greater costs for less dangerous debtors, has stirred up a hornet's nest of opposition.

The Federal Housing Finance Agency, the "security and stability" regulator of mortgage-lending giants Fannie Mae and Freddie Mac, directed the 2 government-sponsored business to make modifications to the in advance fees they charge customers beginning May 1. FHFA director Sandra Thompson said fees will be eliminated for "particular groups core to the Enterprises' mission, such as first-time property owners with lower earnings," while other borrowers buying houses or refinancing loans will pay more.

In a statement released Tuesday, Thompson complained about "misunderstandings" and firmly insisted that "higher-credit-score customers are not being charged more so that lower-credit-score debtors can pay less." She said fees are being removed "for borrowers with lower earnings, not lower credit scores."

Thompson overlooked to discuss that last October, the FHFA altered the way it determines credit ratings, replacing the conventional FICO credit score design it had actually used for decades with FICO 10T and VantageScore 4.0. Thompson called the brand-new models "more inclusive" and stated they would offer the market with "an improved understanding of danger."

Not everyone thinks it's an improvement. Home Financial Services Chair Rep. Patrick McHenry, R-North Carolina, and Housing and Insurance subcommittee chair Rep. Warren Davidson, R-Ohio, sent a scathing letter to Thompson on Tuesday warning that legislation may follow unless the administration calls off the new prices rules.

" These changes can not be validated from a risk management point of view, and amount to a tax on all creditworthy GSE property buyers to fund customers with riskier loans," the lawmakers composed. They included that there is "no doubt that lenders will hand down the new LLPA (loan-level price modification) costs to debtors, which will result in higher home mortgage rates and minimized access to credit."

On the other side of the Capitol, 18 Republican senators sent out a comparable letter to Thompson, demanding details of how the policy decision was reached. The senators composed that it "develops a perverse incentive that punishes hardworking Americans for their financial prudence."

The FHFA's loan-level rate change differs according to the kind of loan, type of home, loan-to-value ratio, debt-to-income ratio and credit rating. The firm chose to make cash-out re-finance loans and home mortgages for second houses more expensive. Thompson said these greater fees will support the "targeted" elimination of fees to customers with lower earnings.

The prices redesign has many critics. The Mortgage Bankers Association told the FHFA that the debt-to-income element is "unworkable and should be replaced," however the company would only consent to delay that component till Aug. 1.

Thompson said the very first objective of the brand-new policy is to support customers who are "limited by earnings or wealth." If big numbers of purchasers are coaxed into house loans they can't pay for, waves of foreclosures can result, particularly when interest rates are increasing. Fannie Mae and Freddie Mac are still in conservatorship following their fast expansion that led, in 2008, to an almost $200 billion taxpayer bailout.

This time the Biden administration wants to fund higher-risk debtors by freely raising costs for all other debtors, as if it's the government's job to require some consumers to pay more so others can pay less.

It's not. The quicker they figure that out, the much better.