EXCLUSIVE: Republicans send a letter to the Biden administration threatening to overturn a new mortgage rule that would tax homeowners with good credit in favor of Americans who don’t pay bills on time
- “It’s a socialist redistribution of wealth,” Rep. Warren Davidson said in a statement. “If the FHFA does not reverse this rule, Congress must.”
- The May 1 rule change aims to compensate low-credit borrowers who borrow more than their mortgages by requiring homeowners with good credit to part with more cash.
- A borrower with good credit could pay about $40 more per month on a $400,000 mortgage.
Republican Representatives Patrick McHenry and Warren Davidson sent a letter on Tuesday promising action if the Biden administration does not reverse changes that increase mortgage costs for homeowners with good credit to compensate for those with riskier credit.
Financial Services Chairman McHenry, RN.C, and Housing and Insurance Subcommittee Chairman Davidson, R-Ohio, said they will move to overturn the new provision through legislation if the FHA does not move to do so itself.
“It is a socialist redistribution of wealth,” Davidson said in a statement. “If the FHFA does not reverse this rule, Congress must.”
Written by the two presidents in their letter to FHFA Director Sandra Thompson and obtained by DailyMail.com.
“This new tax also fails a basic test of fairness by penalizing borrowers who act responsibly, and will, in turn, incentivize homebuyers to reduce their down payments and take on additional debt.”
Financial Services Chief Patrick McHenry, above, and Housing and Insurance Subcommittee Chairman Warren Davidson sent a letter on Tuesday asking the Biden administration to reverse changes that increase mortgage costs for homeowners with good credit to compensate for those with riskier credit.
McHenry, RN.C, and Davidson, R-Ohio, above, said they would move to overturn the provision through legislation if the FHA did not move to do so itself.
When an individual takes out a mortgage, the price they pay is determined by the interest rates set by the Federal Reserve and the loan level rate adjustment. A rate adjustment at the loan level works like a car insurance hike after an accident—the more risky the borrower, that is, those with bad credit, the more they’ll pay.
The May 1 rule change aims to compensate lower-credit borrowers who pay more on their mortgages. They will continue to pay more than those with bad credit, but less than they did before.
In order to make up for lost revenue, borrowers with strong credit — 680 and up — can pay about $40 more per month on a $400,000 mortgage. Homebuyers making down payments of 15 to 20 percent will experience the largest fee changes.
The new fees will only affect those who buy homes after May 1.
The Federal Housing Finance Agency (FHFA) regulates the two federal mortgage underwriter giants, Fannie Mae and Freddie Mac – which means most people with mortgages will be affected.
The housing market has already been hit hard as the Federal Reserve raised interest rates to try to stave off inflation – mortgage rates have climbed above 6 percent.
The rule change serves to “increase pricing support for purchase borrowers constrained by income or wealth,” says Sandra Thompson, director of the FHFA. It said the overall fee changes would be “minimal” and ensure market stability.
The Federal Housing Finance Agency on April 19 proposed a series of rule changes that focus on “fair lending, fair housing, and fair housing financing schemes.” This included adding requirements for lenders to address the minority home ownership gap.
In the last quarter of 2022, the white homeownership rate was 74.5% while the black homeownership rate was 44.9%.
Its stated goal to promote homeownership among minorities was to generate wealth in those communities.
Lenders rely on credit attributes to determine mortgage accessibility and rates. Black home loan applications are currently rejected at a higher rate than any other ethnic group in the country.
Densely populated neighborhoods are also seeing lower home prices, FHFA notes.
