GOP senators demand details on impact of Biden mortgage rate changes on borrowers
Emily Jacobs
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Senate Republicans are demanding details on the Federal Housing Finance Agency’s new mortgage rate pricing shifts that could force people with good credit ratings to pay increased fees to subsidize high-risk mortgages.
The FHFA, the regulator of Fannie Mae and Freddie Mac, announced changes last week to the loan-level price adjustment, or LLPA, matrix as part of the Biden administration’s efforts to boost first-time and low-income borrowers and close the racial homeownership gap. The LLPA rate shifts would make mortgage fees cheaper for low-credit and low-down-payment borrowers, which critics claim would lead to spikes in monthly payments for high-credit homebuyers.
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A group of 18 GOP senators warned in a letter Wednesday to FHFA Director Sandra Thompson that the changes “will invert the common-sense risk financing structure at the GSEs in an effort to decrease mortgage rates for riskier individuals with low credit scores and forcibly raise rates for those with higher scores. This shortsighted and counterproductive policy demonstrates a profound misunderstanding of the necessity of accurately tailoring housing finance products to credit risk and establishes a perverse incentive that punishes hardworking Americans for their fiscal prudence.”
“The housing market should not be exploited as a means to pander to targeted demographics that you have chosen, nor an instrument to secure political favoritism,” stated the letter, led by Sens. Roger Marshall (R-KS) and Thom Tillis (R-NC).
The Republicans accused the FHFA of attempting to “social-engineer the U.S. housing market” and argued the effort risked making high-risk borrowers comfortable with homes outside of their price range.
“The Equitable Housing Finance Plans developed by the GSEs under the direction of FHFA sought to create a class of housing subsidies based on the color of one’s skin, despite the clear unconstitutionality of this concept,” the lawmakers wrote. “Now, FHFA seems intent to go further and enshrine a system that willfully ignores the realities of creditworthiness in an effort to push Americans into homes they may be ill-suited to afford.”
The letter comes one day after two House Republicans, House Financial Services Committee Chairman Patrick McHenry (R-NC) and Rep. Warren Davidson (R-OH), who chairs the panel’s housing and insurance subcommittee, wrote to Thompson, demanding the FHFA undo its planned rate changes or risk GOP efforts “to repeal them legislatively and reconsider the parameters of FHFA’s authority.”
In response to that letter, Thompson rejected in a statement Tuesday that the changes would not result in high-credit people paying the difference for low-credit borrowers.
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“Higher-credit-score borrowers are not being charged more so that lower-credit-score borrowers can pay less,” she said. “The updated fees, as was true of the prior fees, generally increase as credit scores decrease for any given level of down payment.”
Thompson explained that while some updated fees were higher and some were lower, “they do not represent pure decreases for high-risk borrowers or pure increases for low-risk borrowers. Many borrowers with high credit scores or large down payments will see their fees decrease or remain flat.” She also rejected claims that the elimination of upfront fees for low-income homebuyers would “provide incentives for a borrower to make a lower down payment to benefit from lower fees.”