FHFA to Increase Mortgage Rates for Low-Risk Borrowers to Support High-Risk Borrowers

Introduction

The Federal Housing Finance Agency (FHFA) has announced that it will begin charging borrowers with good credit more for mortgages in order to subsidize high-risk borrowers. This move is intended to help low-income and minority borrowers who have been historically underserved by the mortgage industry. However, it has sparked controversy among some who argue that it unfairly penalizes responsible borrowers.

The Details

Under the new plan, borrowers with credit scores above 700 will be charged higher fees for mortgages backed by Fannie Mae and Freddie Mac, while those with lower credit scores will see their fees reduced. The FHFA estimates that the changes will result in an average fee increase of 0.5% for borrowers with credit scores above 700, while those with scores below 700 will see an average fee reduction of 0.5%.

The FHFA argues that the fee changes are necessary to ensure that low-income and minority borrowers have access to affordable mortgages. According to FHFA Director Mark Calabria, „We are taking action to address the longstanding and persistent underinvestment in affordable housing in this country.“ Calabria also noted that the changes are consistent with the FHFA’s mandate to promote access to credit for underserved borrowers.

However, some critics argue that the fee changes unfairly penalize responsible borrowers with good credit. They argue that borrowers with good credit are already less likely to default on their mortgages, and that charging them higher fees will only serve to discourage them from taking out mortgages altogether. Some also argue that the changes could lead to a two-tiered mortgage market, with high-risk borrowers receiving more favorable terms than responsible borrowers with good credit.

The Impact

The impact of the FHFA’s fee changes remains to be seen. While the changes are intended to help low-income and minority borrowers, some worry that they could have unintended consequences. For example, if responsible borrowers with good credit are discouraged from taking out mortgages, it could lead to a slowdown in the housing market. Additionally, if the changes lead to a two-tiered mortgage market, it could exacerbate existing inequalities in the housing market.

Overall, the FHFA’s fee changes are a controversial move that has sparked debate among policymakers and industry experts. While the changes are intended to help underserved borrowers, some worry that they could have unintended consequences for responsible borrowers with good credit. As the housing market continues to evolve, it will be important to monitor the impact of these changes and adjust policies as needed to ensure that all borrowers have access to affordable mortgages

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