Republicans threaten to REPEAL new mortgage rule that would ‘tax’ borrowers with good credit

Republican Representatives Patrick McHenry and Warren Davidson sent a letter on Tuesday pledging action if the Biden administration doesn’t reverse changes that increase mortgage costs for homeowners with good credit to compensate those with riskier credit.

Financial Services Chairman McHenry, RN.C., and Housing and Insurance Subcommittee Chairman, Davidson, R-Ohio, said they would repeal the new provision through legislation if the Federal Housing Finance Agency did not do so itself. pass.

“It’s a socialist redistribution of wealth,” Davidson said in a statement. “If the FHFA doesn’t reverse this rule, Congress should.”

“These changes violate the fundamental principle of risk-based pricing, which is that lower-risk borrowers should pay lower prices to access credit than higher-risk borrowers,” the two chairmen wrote in their letter to FHFA director Sandra Thompson and obtained by DailyMail.com.

“This new tax also fails the basic test of fairness by punishing borrowers who act responsibly, and will in turn incentivize homebuyers to reduce their down payments and take on additional debt.”

McHenry, RN.C., and Davidson, R-Ohio, above, said they would move to legislate to repeal the provision if the Federal Housing Finance Agency did not act on its own.

When a person takes out a mortgage, the rate they pay is determined by both the interest rates set by the Federal Reserve and the loan-level price adjustment. The loan-level price adjustment functions like a car insurance policy that goes up after an accident – the riskier the borrower, i.e. those with bad credit, the more they pay.

A May 1 rule change is designed to compensate low-credit borrowers who pay more for their mortgage. They will still pay more than people with bad credit, but less than before.

To make up for lost revenue, borrowers with strong credit — 680 and above — could pay about $40 more per month on a $400,000 mortgage. Homebuyers who put down 15 to 20 percent down payments will be hit by the biggest rate changes.

New rates only affect those who buy a home after May 1.

The Federal Housing Finance Agency (FHFA) regulates federal mortgage guarantee giants Fannie Mae and Freddie Mac, meaning most people with mortgages will be affected.

The housing market has already been hit hard as the Federal Reserve raises rates to try to stave off inflation – mortgage rates have risen to more than 6 percent.

FHFA director Sandra Thompson says the rule change serves to “increase price support for borrowers who are constrained by income or wealth.” She said overall fee changes would be “minimal” and ensure market stability.

The Federal Housing Finance Agency proposed a series of rule changes on April 19, focusing on “fair lending, fair housing, and fair housing financing plans.” That included adding requirements for lenders to address the minority homeownership gap.

In the fourth quarter of 2022, white homeownership was 74.5 percent, while black homeownership was 44.9 percent.

The stated goal for encouraging home ownership among minorities was to generate wealth in those communities.

Lenders rely on credit characteristics to determine mortgage accessibility and rates. Black home loan applications are currently rejected at a higher rate than any other ethnic group in the country.

Neighborhoods with higher black populations are also seeing lower home prices, FHFA notes.