House passes legislation to rescind controversial Biden mortgage rule
Zachary Halaschak
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The House approved a measure revoking a Federal Housing Finance Agency rule that Republicans say is punitive to those with high credit scores.
The House voted Friday 230-189 to scrap the Biden administration rule, with 14 Democrats voting with the GOP majority. The rule recalibrated the loan-level price adjustment fee charged by mortgage giants Fannie Mae and Freddie Mac in order to make homeownership for lower-income buyers and those with lower credit scores more viable. But Republicans contend that the rule is misguided because some with better credit scores will end up paying more in fees than before.
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The rule became effective on May 1 and revised the FHFA fee charts that provide percentage adjustments based on a person’s credit score and down payment.
Rep. Warren Davidson (R-OH), the legislation’s author, told the Washington Examiner during an interview this week that the rule change was an “equity play to redistribute credit scores.” He said that under the new fee structure, those with credit scores of 680 or above would pay a higher price for their mortgage, and those with a score under the threshold would pay less than before the change.
Davidson made a point of highlighting that the move wasn’t even income-based, and asserted the rule could penalize lower-income buyers who have good credit scores while rewarding some wealthier buyers who have higher incomes but low credit scores.
“People with low income who live within their means and pay their bills on time wind up with good credit scores,” the congressman said, adding that the rule could end up benefiting some wealthier people who don’t worry about their income as much and can afford to be irresponsible with how they pay their bills.
A second phase of the mortgage rule was set to take place in August, but the FHFA ended up scrapping that provision amid uproar. That withdrawn portion would have further assessed fees based on a buyer’s debt-to-income ratio, a controversial proposal that faced immediate backlash.
“If you have a lot of income and very little debt, you were going to pay a higher fee even still so that you could subsidize people who have lots of debt and little income. So that was on its face just really not a bright idea,” Davidson said of the original plan.
Davidson’s bill would undo all of the FHFA rule change and additionally makes it so that in the future the FHFA can’t implement a debt-to-income ratio test. The bill also commissions a study by the Government Accountability Office to examine the implications of the FHFA rule change.
While Republicans have assailed the rule change, Democrats have defended it as a means to increase housing affordability, particularly given how prohibitive the housing market has become amid higher home prices and mortgage rates.
FHFA Director Sandra Thompson recently appeared before the House Financial Services Committee and defended the rule change, receiving some backup from House Democrats who contend the move is a step in the right direction and would help prevent inequality.
“My colleagues on the other side of the aisle appear to be more concerned about protecting the wealthy, even if it comes at the expense of those with less intergenerational wealth,” said Rep. Maxine Waters (D-CA), the committee’s ranking member.
Thompson released a statement in April pushing back on what she called “misunderstandings” about the change.
“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 said that the new fee structures are higher and lower in differing amounts and do not represent across-the-board fee increases for low-risk borrowers or fee decreases for all high-risk borrowers.
“Many borrowers with high credit scores or large down payments will see their fees decrease or remain flat,” she added.
While Davidson’s bill passed the House, it has a less certain future in the Senate, where Democrats hold a slight edge.
Additionally, if sent to President Joe Biden’s desk, he would likely veto the legislation, much like he did earlier this year on another bill that would have rescinded a controversial Labor Department rule.
More broadly, Republicans have recently been pushing for more congressional oversight over rulemaking and the administrative state.
Earlier this month, the House passed the Executive In Need of Scrutiny, or REINS, Act. The bill seeks to hand Congress more power over the rulemaking process, which proponents said has been used excessively to enact sweeping changes to the country without the backing of Congress.
Rep. Kat Cammack (R-FL), the bill’s sponsor, told the Washington Examiner that both parties have weaponized the rulemaking process. Her legislation would require that every new “major rule” proposed by federal agencies be approved by the House and Senate before going into effect.
“Today, I think people can all agree, regardless of what political affiliation you have, that there is a new fourth branch of government, and it’s the regulatory regime,” she said.
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Davidson, a supporter of Cammack’s legislation, said that the FHFA rule would face closer scrutiny under her proposal.
“It is an example where the REINS Act would definitely kick in and we would review this, and clearly in the current environment we would say no thank you,” Davidson said.