by Mitch Kokai
Senior Political Analyst, John Locke Foundation
Joseph Simonson of the Washington Free Beacon explains why homeowners with good credit should beware.
If you’ve worked hard to maintain good credit, President Joe Biden is about to make your future mortgage more expensive.
A Federal Housing Finance Agency rule set to take effect on May 1 will increase monthly mortgage fees for borrowers with good credit scores. Those higher fees will be used to subsidize individuals with bad credit scores.
The administration claims the change will help support low-income home buyers. But others say it’s part of the White House’s ongoing effort to remedy racial differences in home ownership.
Whatever the rationale, the result is clear: Borrowers with strong credit will likely wind up paying thousands of dollars more over the course of their mortgages, thanks to the Biden administration’s policy.
Here’s how the rule change will work:
When an individual takes out a mortgage, the interest rate they pay generally reflects two things: the federal funds rate set by the Federal Reserve and something called a loan-level price adjustment. The latter functions like a car insurance premium that goes up after you’ve had an accident.
In short, riskier borrowers with low credit scores or income pay more each month for their mortgage. These borrowers will still pay more after May 1 but much less than they paid before. In order to compensate for that lost revenue, borrowers with strong credit will see their monthly increase to roughly $40 a month on a $400,000 mortgage. That’s an extra $14,400 over the course of a standard 30-year mortgage.
The Federal Housing Finance Agency regulates federal mortgage guarantor giants Fannie Mae and Freddie Mac—which are both quasi-government agencies—meaning those fee hikes will be reflected for most consumers who seek to take out a mortgage with a bank. A majority of mortgages are eventually secured by Fannie Mae and Freddie Mac, resulting in the two companies holding tremendous influence over conventional mortgage rates.