New Biden Rule: Homebuyers With Good Credit Must Pay Higher Fees to Subsidize Other People’s Higher Risk Loans

Starting on May 1st, the Biden Administration has a big change coming to the housing market.


And of course if you’ve been paying attention, you know that the housing market is already in terrible shape.


Prices are still high, and interest rates have SHOT up – making homes the least affordable they’ve been in decades.


But if you’ve been careful to pay all your bills on time, and you’ve saved up money for a down payment you should be ok right?




Thanks to a push for “equity in housing markets” some buyers with good credit scores and good down payment savings will actually pay HIGHER interest than those in worse financial shape.



In the above chart you can see the updated LLPA fees that kick in on May 1st 2023.


LLPA fees mean “loan level pricing adjustments” which is just fancy term for another way your lender gets more money out of you.


Remarkably you can see that you pay a HIGHER fee for a 20% or 25% down payment (the LTV number means how much you are putting down vs. how much you are borrowing. So a 95% LTV means that you’re only putting down 5%.) than you would pay for a 5% down payment – which in simple economics should be a much riskier loan.


So someone with a worse credit score who puts down less money will end up paying less than you, if you have a better credit score and put down more.


What lender would do that?


From a simple economics perspective that is absolutely insane. People with less savings and lower credit scores are less likely to pay their loan back. So a bank would have to charge them more…


But “lender” here doesn’t mean your local bank.


That chart is from Fannie Mae, one of the biggest lenders in the world.




And like the Federal Reserve, Fannie Mae is nominally separate from the government, but in practice, it’s effectively a government agency. 


It’s one of the main intermediaries between the US Government and people who borrow money for mortgages and other debt. And so the US Government strictly regulates how Fannie Mae operates.


And the US Government, under President Biden, has decided that they want to punish those with good credit scores, and reward those with bad credit scores.


That’s terrible economics! And we’re already in one of the worst housing markets in decades.


But it’s pretty good politics.


Like student loan forgiveness, it’s effectively a cash handout to Biden voters, who tend to be more in debt and have less savings.


Here’s an excerpt from National Association of Realtors President Kenny Parcell:


“…fees are raised on some borrowers with good credit scores and moderate down payments, hitting middle-wealth homebuyers. Furthermore, FHFA included new fees on borrowers with higher debt-to-income scores. NAR will review other changes in the new LLPA structure and share our concerns with the FHFA.


In the wake of a three-percentage point increase in mortgage rates, now is not the time to raise fees on homebuyers. Furthermore, the FHFA needs to address its recent increase in fees on homebuyers in high-cost markets as well as guarantee fees that impact all homebuyers.  Homebuyers are hurting and these changes are overdue…”


So unfortunately it seems that the Biden admin is sacrificing overall health in the housing markets for short term political gain.


Here’s how Fox News put it:


A Biden administration rule is set to take effect that will force good-credit home buyers to pay more for their mortgages to subsidize loans to higher-risk borrowers.


Experts believe that borrowers with a credit score of about 680 would pay around $40 more per month on a $400,000 mortgage under rules from the Federal Housing Finance Agency that go into effect May 1, costs that will help subsidize people with lower credit ratings also looking for a mortgage, according to a Washington Times report Tuesday.


“The changes do not make sense. Penalizing borrowers with larger down payments and credit scores will not go over well,” Ian Wright, a senior loan officer at Bay Equity Home Loans, told the Times. “It overcomplicates things for consumers during a process that can already feel overwhelming with the amount of paperwork, jargon, etc. Confusing the borrower is never a good thing.”


$40 a month may not sound like much, but this is just one more step towards a lack of ownership over your life…


And it’s one more step towards aggressive wealth redistribution… a phenomenon that we once called “communism.”


Even some very left wing figures have come out against this:


“It’s unprecedented,” added David Stevens, who served as Federal Housing Administration commissioner during the Obama administration. “My email is full from mortgage companies and CEOs [telling] me how unbelievably shocked they are by this move.” 


We’re not political here at Wealthpin, but we do believe you need to understand what powerful people like politicians and corporate CEOs are doing in order to be a good investor.


And it looks like the housing market will continue to be a mess for the foreseeable future..


It’s probably a bad time to invest in the single family housing market, including lenders and homebuilders…


And it may help REITs that own rental properties, since more people are likely to rent when the homebuying situation is this bad.


But overall, a dark day for housing markets in the US.

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