House GOP lawmakers demand federal housing authority reverse new rule to punish creditworthy homebuyers and reward buyers with bad credit

April 27, 2023
Ben Marquis

The Biden administration rolled out a plan earlier this year that would essentially punish low-risk homebuyers with good credit by charging them additional fees that would be used to reward high-risk homebuyers with poor credit with subsidized lower rates on loans.

Now a pair of top House Republicans are demanding the Biden administration halt and reverse that plan or face legislation to repeal it along with reconsideration of the particular offending federal agency's delegated authorities, the Daily Wire reported.

Taxing homebuyers with good credit to subsidize those with poor credit

In January, the Federal Housing Finance Agency announced in a news release that it had made more changes to the guidelines and rules that govern government-sponsored entities in the single-family home lending market like Fannie Mae and Freddie Mac, in this instance with regard to "redesigned and recalibrated upfront fee matrices for purchase, rate-term refinance, and cash-out refinance loans."

The change, which would go into effect on May 1, reflected the Biden administration's "priorities" to encourage and maintain "support for single-family purchase borrowers limited by wealth or income, while also ensuring a level playing field for large and small sellers, fostering capital accumulation, and achieving commercially viable returns on capital."

FHFA Director Sandra Thompson said in a statement at that time, "These changes to upfront fees will strengthen the safety and soundness of the Enterprises by enhancing their ability to improve their capital position over time," and added that the move was intended to advance the "mission of facilitating equitable and sustainable access to homeownership."

An announcement from FHFA in mid-March further clarified the "redesigned and recalibrated grids for upfront fees in addition to a new upfront fee for certain borrowers with a debt-to-income (DTI) ratio above 40 percent," which were paired with previously announced "upfront fee eliminations" that were intended to "increase pricing support for purchase borrowers limited by income or by wealth.​"

However, that announcement also noted that "FHFA has received feedback from mortgage industry stakeholders about the operational challenges of implementing the DTI ratio-based fee," and therefore had delayed implementation of the change from May 1 to August 1.

"Punishing borrowers who act responsibly"

On Tuesday, a press release from the House Financial Services Committee revealed that Chairman Patrick McHenry (R-NC) was joined by Warren Davidson (R-OH), chair of the Subcommittee on Housing and Insurance, in sending a sharply critical letter to FHFA Director Thompson about the structural changes made with regard to loan level price adjustments.

"We write today to express our disapproval of your recently mandated changes to the upfront loan level pricing adjustment (LLPA) structure employed by Fannie Mae and Freddie Mac (the GSEs)," the lawmakers wrote in the letter. "These 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."

They noted that LLPAs had originally been designed to "encourage responsible lending and to protect taxpayers from undue risk" but that the FHFA changes would have 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," McHenry and Warren stated. "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."

"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 carry additional debt," they continued. "In short, your new LLPA structure only increases risks to the GSEs and taxpayers while compounding the existing economic uncertainty in our housing markets."

Reverse this now or we'll repeal it with legislation

The two committee chairs concluded that the FHFA's changes would cause "serious and lasting harm to our housing economy," reminded Thompson of her duty to ensure the regulated GSEs operate in a "safe and sound manner," and urged the director to "take the necessary steps to reverse these unwise changes and eliminate this tax on creditworthy borrowers."

"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 powerful GOP lawmakers added.

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