FHFA to Impose Higher Mortgage Charges on Low-Risk Borrowers to Support High-Risk Borrowers

Introduction

The Federal Housing Finance Agency (FHFA) has announced that it will start charging borrowers with good credit more for mortgages to subsidize high-risk borrowers. The move is aimed at helping low-income and minority borrowers who have been historically underserved by the mortgage market. The FHFA oversees Fannie Mae and Freddie Mac, which together guarantee about half of the US mortgage market.

Details of the Plan

Under the new plan, borrowers with credit scores above 700 and who are taking out mortgages on second homes or investment properties will be charged higher fees. The fees will be used to subsidize mortgages for low-income and minority borrowers who have credit scores below 700. The FHFA estimates that the new fees will add an average of 0.5% to the cost of a mortgage for borrowers with good credit.

The FHFA says that the new plan is necessary to address the racial and economic disparities in the mortgage market. According to the agency, Black and Hispanic borrowers are more likely to have lower credit scores and to be denied mortgages than white borrowers with similar credit profiles. The FHFA hopes that the new plan will help to level the playing field and make it easier for low-income and minority borrowers to access affordable mortgages.

Criticism of the Plan

The new plan has been met with criticism from some quarters. Critics argue that it is unfair to charge borrowers with good credit more to subsidize high-risk borrowers. They also argue that the plan could discourage some borrowers from taking out mortgages, which could hurt the housing market. Additionally, some critics have pointed out that the plan does not address the root causes of the racial and economic disparities in the mortgage market.

In response to the criticism, the FHFA has defended the plan, saying that it is necessary to address the systemic inequalities in the mortgage market. The agency has also pointed out that the new fees will only apply to a small percentage of borrowers and that the overall impact on the housing market will be minimal.

Conclusion

The FHFA’s new plan to charge borrowers with good credit more for mortgages to subsidize high-risk borrowers is a controversial move aimed at addressing the racial and economic disparities in the mortgage market. While the plan has been met with criticism from some quarters, the FHFA argues that it is necessary to level the playing field and make it easier for low-income and minority borrowers to access affordable mortgages. Only time will tell whether the plan will be successful in achieving its goals

Original article Teaser

FHFA to Charge Borrowers With Good Credit More for Mortgages to Subsidize High-Risk Borrowers

Helping fuel another subprime mortgage crisis is apparently now on the economic agenda of Biden’s Federal Housing Finance Agency.  On May 1st, Fannie Mae and Freddie Mac are going to change fees that will affect new mortgages originating from U.S. banks that will have the effect of charging those with good credit more to subsidize borrowers with low scores.  Under the new guidelines, someone with a 620 FICO score and a 5% downpayment would get a 1.75 point reduction on personal mortgage insurance (PMI) fees. Meanwhile, those with a 740 or above with 15-20% down will pay a 1% surcharge on their new loan, a quadrupling from the current 0.25% fee.  According to Reason’s Elizabeth Nolan Brown: The fee increase

Details to FHFA to Charge Borrowers With Good Credit More for Mortgages to Subsidize High-Risk Borrowers