David Stevens, a senior housing official under former President Barack Obama, condemned a proposal from President Joe Biden that will effectively penalize financially stable homebuyers to subsidize those with higher risk.
Americans purchasing a new home or refinancing their existing mortgage can expect to pay higher mortgage rates and monthly fees starting in May if they have a higher credit score, while those with lower credit scores and smaller down payments will be provided better rates. Homebuyers with credit scores above 680, for instance, would pay an additional $40 each month on a home loan of $400,000, while homebuyers who make down payments between 15% and 20% will receive the largest fees.
Stevens, who previously served as federal housing commissioner for the Department of Housing and Urban Development, asserted that the move is “unprecedented” in an interview with Fox News. “We can do better programs to help more minorities get into homeownership,” he contended. “This is not the way to do it.”
Government-backed mortgage corporations Fannie Mae and Freddie Mac, the latter of which Stevens used to lead as senior vice president of single family lending, will pivot from a primarily risk-driven assessment toward lowering fees for potential homebuyers with lower credit scores. “This has really convoluted the entire discipline and credit risk pricing structure that Fannie Mae and Freddie Mac have followed since their inception,” Stevens added. “I totally recognize and appreciate the effort to bring more people into homeownership who have traditionally not had that opportunity. But using Fannie Mae and Freddie Mac for these sorts of political purposes may not be the best thing to do.”
Stevens confirmed that Sandra Thompson, the current director of the Federal Housing Finance Agency, made a shift in which she “lowered the fees being charged to borrowers with low down payments and low credit scores” and compensated them by “raising fees on better creditworthy borrowers who are putting down much larger down payments.” He noted that he received an email from an executive at a mortgage lending company who noted that the policy incentivizes borrowers to worsen their credit before applying for a loan in order to improve their fee structure.
Mortgage Bankers Association CEO Robert Broeksmit likewise said in a letter to the Federal Housing Finance Agency that the policy would raise costs for typical homebuyers despite the “current stressed housing market conditions already making affordability a challenge.” He called on the loan level pricing adjustments based on income to be removed.
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The implementation of the new fee structure, part of which was delayed until August following criticism from mortgage industry professionals, is consistent with White House policies attempting to address claims of racial income and wealth inequality. President Joe Biden recently issued an executive order mandating that his administration operate under a “whole-of-government approach to racial equity and support for underserved communities” and calling on federal agencies to “embed” the philosophy into all aspects of their decision-making.
The executive order specifically mentioned that agencies should “expand access to capital, preserve housing and neighborhood affordability, root out discrimination in the housing market, and build community wealth.”