What happened to the American dream?
Not too long ago, we were told that if you worked hard and built good credit, you could soon put a down payment on a house and become a homeowner. Now, however, the Biden administration appears to be penalizing financially responsible Americans for their hard work.
In January 2023, the Federal Housing Finance Agency announced that two major government- sponsored entities, the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), will be adjusting their single-family pricing framework, starting on May 1. This will change the fees known as loan-level price adjustments (LLPAs) and affect all future homebuyers ’ mortgage rates — right in the middle of the spring housing market and in the face of what many economists predict is a coming recession.
With the new fees, a homebuyer with a credit score of 680 or above will now have to pay a 1 percent LLPA fee. Those who make a 15 percent to 20 percent down payment will see the biggest increase — about $40 or more on their monthly mortgage payments.
In contrast, people with credit scores below 680 — riskier borrowers who are more likely to default on mortgage payments — would instead receive a 1.75 percent discounted LLPA fee.
Yes, you read that right: people who have a higher risk of default from a lender’s perspective will receive preferential treatment at the expense of those prospective buyers who are traditionally considered safer bets.
When this new policy was announced, the Biden administration claimed that it would make home ownership more affordable and thus strengthen the housing market. But this is nonsense. Homes will now instead become even more unattainable for hardworking and financially responsible Americans.
No less a figure than former Obama Federal Housing Administration Commissioner David Stevens told Fox Business, “This is an unprecedented move.” “This has really convoluted the entire discipline and credit risk pricing structure that Fannie Mae and Freddie Mac have followed since their inception,” he said.
Besides putting the burden on responsible homebuyers, this policy will make the housing market more dangerous. The cause of the 2008 housing market crash was a flood of borrowers with low credits attaining and then defaulting on subprime mortgages. This new policy once again encourages risky mortgages for buyers with bad credit.
The question most middle Americans are likely asking themselves is, why would the government do this? Is this a case of amnesia, or does the Biden administration’s Equity Agenda once again appear to override all other considerations?
As history tells us, government actions often fail to anticipate unintended consequences that hurt those very constituencies they claim to be helping. In this case, the potential for a cascading effect on middle-class homebuyers bidding for less expensive homes to offset this new cost may have the unintended effect of reducing the available inventory — and raising the prices — for those at the lowest end of the income scale. Has the Biden administration conducted a disparate impact analysis to assess how this policy will impact these communities? Has it studied what these changes will likely do to the housing market and U.S. economy? What favorite special interest groups are driving this policy?
The Biden administration has already tried to punish financially responsible Americans when it pushed forward its student loan forgiveness program. That would have shifted the burden of payment from borrowers to taxpayers, many of whom have already paid off their own student debts. Now, it’s seeking to introduce another scheme that would subsidize high-risk mortgages, essentially forcing the burden on to financially responsible Americans.
These are not the actions likely to result in either greater equity or increased prosperity.
Pete McGinnis is director of communications for the Functional Government Initiative, an organization dedicated to improving public awareness about government officials, decisions and priorities.