Joe Biden ran as a moderate, but over the past few years, he’s shown that the sometimes cognizant president has handed over policymaking to leftwing staffers. In yet another policy that has even moderate Democrats asking what the administration is doing, the White House recently announced a policy to raise costs for Americans with good credit in order to subsidize those who do not pay their bills on time.
Biden seems determined to punish those who are frugal and save to reward the profligate or immature, who one popular liberal congressman admitted Democrats rely on for votes.
“Homebuyers with good credit scores will soon be facing higher mortgage fees as the Biden administration seeks to close the racial homeownership gap and get more first-time and low-income buyers through the door,” Newsweek reported.
“Starting in May, a new federal rule will upend the current structure of the Loan-Level Price Adjustment (LLPA) matrix. Homebuyers with a good credit score could see their monthly mortgage payment rise by over $60 a month, while riskier borrowers will get more favorable mortgage terms because their fees were reduced. It’s a move the Federal Housing Finance Agency (FHFA) hopes will address housing affordability challenges in the U.S., but it’s come under scrutiny for being unfair and potentially ineffective.”
While the numbers look small, the fees will add up, dramatically hurting those who’ve been frugal and built a good credit score.
The Washington Examiner explained how this new mortgage regime will work in reality, especially in light of interest rates rising to beat back Biden’s inflation:
The difference between the low 2.68% rate of December 2020 and last week’s 6.94% rate means that, despite the cooling of the national housing market, homebuyers are getting a lot less for their money. Consider that a $500,000 mortgage from late 2020 would cost $2,023 per month for principal and interest, whereas currently, it would cost $3,306, an increase of more than 63% to borrow the exact same amount. To think of it another way, a current homebuyer with a $2,000 monthly budget can afford to borrow only $288,000, more than 40% less than he could borrow just 2 1/2 years ago.
Starting May 1, if you have a credit score north of 680, Biden wants to charge you an extra fee that comes out to about $40 a month on a $400,000 mortgage. That money will go to subsidize mortgages for people with smaller down payments and lower credit scores — that is to say, people who don’t pay their bills on time or who borrow money and outright fail to pay it back.
Credit scores are the only objective, colorblind numerical measure of personal financial responsibility. The methodology with which they are used has even been made fairer recently through the inclusion of rents and other personal bills. So no, this is not a program targeted at helping the poor or nonwhite buyers. In reality, this is a program targeted at helping deadbeats.
But this idea is also terrible from a practical perspective. First of all, $40 a month might not seem like a lot, but it’s $14,400 over the lifetime of a mortgage, and at today’s interest rates, it effectively reduces what responsible homebuyers can afford by $6,000. Moreover, a subsidy for borrowers with poor credit and low down payments is a recipe for more foreclosures. This precise thing happened within recent memory during the last big recession — recall that it helped bring about the financial crisis of 2008. It is therefore incredible that Biden, who was still a senator and running for office at that time, hasn’t learned any lessons about the dangers of subsidizing mortgages for those demonstrably least likely to repay them.
The Wall Street Journal Editorial Board joined the Examiner is showing how absurd this policy is and how it will be a detriment to the country, writing: “This is the socialization of risk, and it flies against every rational economic model, while encouraging housing market dysfunction and putting taxpayers at risk for higher default rates. The 20% down payment is a financial discipline that encourages buyers to seek homes they can afford, and it gives buyers skin in the borrowing game. No one wants to default on a mortgage when they could lose tens or hundreds of thousands of dollars in equity they’ve built up in their homes.
The Biden Administration may also end up harming other homeowners down the road. Many high-risk borrowers brought in under the plan will buy homes in low-income neighborhoods. The working-class families who already live in those neighborhoods worked hard and saved for their homes. If their new neighbors default and face repossession, nearby homeowners may see their property values fall.
The biggest problem here is fairness. Taxpayers already subsidize mortgages for low-income borrowers through the Federal Housing Administration. Now they want to punish those who have maintained good credit while rewarding those who haven’t. In the name of making housing more equal, they are pursuing an inequitable policy.”
The new policy also received criticism from the left. Fox News interviewed a former Obama housing official who called the move “unprecedented” and contended that Biden’s move is “not the way” to get more people into homes.
Former Federal Housing Administration Commissioner David Stevens told America Reports, “We can do better programs to help more minorities get into homeownership. This is not the way to do it.”
“For the first time ever, the [FHFA] director, in an effort to bring more first-time homebuyers – particularly minority homebuyers into the GSE’s lending programs – made a shift where she lowered the fees being charged to borrowers with low down payments and low credit scores and the way she compensated or they compensated for that loss of income, that capital costs that they’re going to incur, is they’re actually raising fees on better creditworthy borrowers who are putting down much larger down payments,” Stevens continued.
“This has really convoluted the entire discipline and credit risk pricing structure that Fannie Mae and Freddie Mac have followed since their inception,” Stevens concluded.
The Obama official warned, “I think it violates the entire discipline that these two companies have operated under. And it’s going to end up costing some borrowers who are putting in 15, 20% down payments, who have credit scores in the seven hundreds and above more for their mortgage so they can help pay for those who are getting the discount.”
If Biden was trying to demoralize a country, what would he do differently?