State officials slam Biden’s good-credit mortgage fees for imposing a ‘middle-class tax hike’

The Biden administration’s new mortgage rules that will take a bite out of homebuyers with good credit to subsidize bad-credit borrowers took effect Monday as officials from more than two dozen states pleaded with President Biden to reverse course.

The policy from the Federal Housing Finance Agency “amounts to a middle-class tax hike” by forcing higher mortgage rates and fees on homebuyers with good credit scores, 34 elected Republican financial officials from 27 states wrote to the administration.

“It comes down to just being old-fashioned socialism,” Derek Kreifels, CEO of the State Financial Officers Foundation, said in an interview. “It’s actually just one of the more ludicrous policies we’ve heard from this administration.”

The administration’s goal is to increase access to affordable housing for those with lower incomes and poor credit ratings at the expense of homebuyers who make down payments of 15% to 20% and have built up their credit.

The new loan-level price adjustment fees, or LLPA, apply only to Americans buying houses or refinancing after May 1 and those with loans backed by mortgage giants Fannie Mae and Freddie Mac, which is more than half of borrowers.

Those with higher credit scores will receive lower mortgage interest rates overall and pay less in total fees than those with lower ratings, but their costs will increase.

Homebuyers with a 680 or higher credit score will pay an estimated $40 per month more on a $400,000 home loan than they previously would have. That will amount to roughly $14,400 over the life of a 30-year, fixed-rate mortgage.

The good credit penalty also will hit fees paid in closing costs, which homebuyers often overlook. Under the new rules, fees will double from 0.5% to 1% for a homebuyer with a “very good” credit score — 740 to 759 — who pays a 20% down payment. On a $400,000 home, that raises the fee from $2,000 to $4,000.

The fee will be cut from 2.75% to 1.5% for a homebuyer with “fair” credit — 640 to 659 — who makes a 5% down payment. On a $400,000 home, that reduces the fee from $11,000 to $6,000.

The Federal Housing Finance Agency, or FHFA, said in a statement to The Washington Times that the framework is designed “to maintain support for single-family purchase borrowers limited by wealth or income (not low credit scores), while also ensuring a level playing field for large and small sellers, fostering capital accumulation, and achieving commercially viable returns on capital.”

The White House did not respond to a request for comment about the pressure to scrap its rule.

Sen. Elizabeth Warren, Massachusetts Democrat and a member of the Senate Banking Committee, strongly defended the administration in a recent interview with The Times.

“We’ve got an economy where the rich keep getting richer,” Ms. Warren said. “And part of what the administration is looking for are ways that we can expand opportunity for everyone.”

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.”

Republican lawmakers are threatening legislation to roll back the new rule as part of their efforts to use the Congressional Review Act to scuttle Mr. Biden’s regulatory agenda.

“We call on you to take the necessary steps to reverse these unwise changes and eliminate this tax on creditworthy borrowers,” House Financial Services Committee Chairman Patrick McHenry, North Carolina Republican, wrote last week to FHFA Director Sandra Thompson.

“If you are unwilling or unable,” Mr. McHenry said, “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 fees and rates are changing as the housing market faces the highest interest rates in years to combat inflation. The average rate on a 30-year, fixed-rate mortgage was 6.43% as of last week, according to Freddie Mac.

President Obama’s Federal Housing Administration commissioner, David Stevens, has come out against the rates and fees that the FHFA has tried to downplay.

“We’re all seeing the home sales data and seeing how much home sales are declining because of these rising interest rates,” Mr. Stevens said recently on Fox News. “And now we’re adding this second whammy to good credit, worthy homebuyers who are now going to have to pay for other people’s mortgages.”

Republican senators said the policy is aimed at 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,” a group of Senate Republicans wrote last week to FHFA.