Senate Republicans are taking aim at a “shortsighted” Biden administration rule that will force homebuyers with good credit scores to pay higher mortgage rates and fees to subsidize people with riskier credit ratings who are also in the market to buy houses.
Sen. Roger Marshall, Kansas Republican, sent a letter to the Federal Housing Finance Agency (FHFA) demanding details on how the policy, which is set to take effect May 1, will be implemented.
He said the rule will “invert the common-sense risk financing structure” at government-sponsored entities and mortgage giants Fannie Mae and Freddie Mac.
“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,” he wrote in the letter.
House Financial Services Committee Chairman Patrick McHenry, North Carolina Republican, called this week on FHFA Director Sandra Thompson, a Biden appointee, to reverse the policy or face the possibility that Congress would repeal it.
“These mandated changes … will result in serious and lasting harm to our housing economy, and cannot take effect as scheduled on May 1,” Mr. McHenry wrote with committee member Warren Davidson, Ohio Republican. “As the director of FHFA with a statutory duty to ensure that ‘each regulated entity operates in a safe and sound manner,’ we call on you to take the necessary steps to reverse these unwise changes and eliminate this tax on creditworthy borrowers.
SEE ALSO: Biden to hike payments for good-credit homebuyers to subsidize high-risk mortgages
“If you are unwilling or unable, the committee is prepared to take action to repeal them legislatively and reconsider the parameters of FHFA’s authority under statute to mandate any similar pricing changes going forward.”
The fee changes will go into effect May 1 as part of the FHFA’s push for affordable housing, and they will affect mortgages originating at private banks across the country. Fannie Mae and Freddie Mac will enact the loan-level price adjustments, or LLPAs.
Mortgage industry specialists say homebuyers with credit scores of 680 or higher will pay, for example, about $40 per month more on a home loan of $400,000. Homebuyers who make down payments of 15% to 20% will get socked with the largest fees.
The new fees will apply only to Americans buying houses or refinancing after May 1.
Mr. Marshall’s letter signals that Republicans won’t let the rule go into effect quietly and may challenge it in court.
The senator accused President Biden of using the changes for political gain.
“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,” he wrote with a dozen other senators.
Sen. Elizabeth Warren, Massachusetts Democrat and a member of the Senate Banking Committee, defended the administration’s rule on Wednesday.
“We’ve got an economy where the rich keep getting richer,” she told The Washington Times. “And part of what the administration is looking for are ways that we can expand opportunity for everyone. Like anything, you’ve got to chew through the details to make sure you’re going to get the results you want.”
She said policymakers “need to boost homeownership across the board in America.”
“We still haven’t recovered from the crash in 2008 and more than 6 million homeowners being forced out of their homes because of Wall Street speculation bringing down our economy,” Ms. Warren said. “But I applaud all efforts to make housing and homeownership more affordable across our nation.”
Republicans are increasingly adamant in opposition to the rule.
In their letter, Senate Republicans said the FHFA has tried before to “social-engineer the U.S. housing market” by tweaking the rules that the government-sponsored enterprises (GSEs) must follow. They said the new effort seems to encourage high-risk borrowers to apply for homes out 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,” they 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 from Mr. McHenry and Mr. Davidson said the changes “cannot be justified from a risk management perspective, and amount to a tax on all creditworthy GSE homebuyers to subsidize borrowers with riskier loans.”
“The GSEs implemented LLPAs as a risk-based pricing tool to encourage responsible lending and to protect taxpayers from undue risk,” they wrote. “However, the changes mandated by FHFA in January of this year will achieve the opposite result. These changes violate the fundamental principle of risk-based pricing, namely that lower-risk borrowers should pay lower prices for access to credit than higher-risk borrowers. There is no doubt that lenders will pass on the new LLPA costs to borrowers, which will result in higher mortgage rates and reduced access to credit.”
They called it a “new tax” that “fails the basic test of fairness by punishing borrowers who act responsibly, and will in turn incentivize homebuyers to reduce their down payments and carry additional debt.”
“In short, your new LLPA structure only increases risks to the GSEs and taxpayers while compounding the existing economic uncertainty in our housing markets,” they wrote.
It’s not just Republicans who are upset with the rule. President Obama’s Federal Housing Administration commissioner, David Stevens, told Fox News that the nation “can do better programs to help more minorities get into homeownership.”
“This is not the way to do it,” he said.
The Biden administration is defending the rule.
Ms. Thompson has said the fee changes will “increase pricing support for purchase borrowers limited by income or by wealth.”
The agency calls the overall fee changes “minimal” and said the moves will ensure market stability.
• Dave Boyer contributed to this report.
• Tom Howell Jr. can be reached at thowell@washingtontimes.com.
• Ramsey Touchberry can be reached at rtouchberry@washingtontimes.com.
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