A new policy for mortgage borrowers from U.S.-government-backed institutions has inspired criticism suggesting the changes benefit individuals with lower credit scores at the expense of borrowers with higher credit scores, but proponents suggest that’s an incomplete characterization of the situation.

The Federal Housing Finance Agency altered the loan fees charged to Americans with mortgages from Fannie Mae and Freddie Mac, which provide more than half of all mortgages in the U.S. According to the Urban Institute, out of 81 types of borrowers classified by down payments and credit scores, the FHFA increased the fees of 23 groups—mainly those with excellent credit scores—by as much as 75 basis points and slashed the fees of 45 groups—largely borrowers with fair scores and lower down payments—by as much as 200 basis points.

Under the changes, a borrower with a 700 credit score and a 20% down payment previously would have paid an upfront fee equal to 1.25% of the loan amount — $7,500 on a $600,000 loan. Under the new FHFA LLPA’s, the borrower’s fees are raised to 1.375%, or a total of $8,250 on a $600,000 loan.

Against the Fee Changes

Rep. Stephanie Bice (R-OK) introduced  H.R.2876, The Free Market Mortgage Act of 2023, that seeks to cancel certain proposed changes to loan level price adjustments by the Federal National Mortgage Association and credit fees charged by the Federal Home Loan Mortgage Corporation.

"Since President Biden took office, he has increased the role of the federal government in the lives of everyday Americans. The policies of this Administration have led to high inflation, more government dependency, a struggling economy, and mortgage rates that have doubled over the last 3 years. Instead of reversing his failed policies, he continues to double down," said Rep. Bice.

"Under a new rule from the Federal Housing Finance Agency (FHFA), which took effect on May 1st, borrowers with lower credit ratings and less money for a down payment will qualify for better mortgage rates, while those with higher ratings will pay increased fees. Individuals with a credit score over 680 will pay about $40 more each month on a $400,000 loan. This monthly payment could also be higher, depending on the size of the loan.

Simply put, Biden’s new policy will force home buyers with good credit to pay more for their mortgages to subsidize loans to higher-risk borrowers. To make matters worse, and similarly to his student loan forgiveness scheme, he is once again trying to bypass Congress by centralizing more power in the hands of the executive branch. This is why I introduced the Free Market Mortgage Act of 2023. This legislation would prevent Biden’s senseless FHFA policy from being enacted and stops his anti-capitalist agenda.

I am committed to halting the President’s detrimental agenda and holding his Administration accountable. Since Biden took office, he has made policy decisions that supersede authority with little or no oversight. This changes under a House Republican majority. We are fighting back and seeking to end a culture of dependency on the federal government. The last thing we should do is add more fees and burdens on hard-working Oklahomans. I will continue working to get our country back on track."

Rep. Ken Calvert (R-CA): “It’s blatantly unfair to impose increased fees on homebuyers simply because they have a higher credit score,” said Rep. Calvert. “With interest rates on the rise, these new higher fees will only make homebuying more expensive for American families. Raising rates on homebuyers with good credit scores is unnecessarily punitive and stands contrary to the risk-based approach commonly associated with our housing finance programs. Congress should pass the SAFE Act now to stop these new high credit score fees on homebuyers and focus on strengthening traditional federal programs designed to help first-time, Veteran, and other homebuyers.”

For the Fee Changes

Criticism of the plan has escalated in recent day, with 34 high-ranking financial officials across 27 states sent a letter to Biden claiming the “unconscionable policy” would “further depress” the real estate market and “unfairly cost” middle-class Americans “millions upon millions of dollars.”

But some experts disagree with the criticism, Jim Parrott and Janneke Ratcliffe of the Urban Institute think tank’s Housing Finance Policy Center point out a separate policy forces borrowers with a down payment of less than 20% to buy mortgage insurance—allowing the FHFA to charge them less because their loans are less risky and making it so less-qualified buyers are still ultimately paying higher fees.

The FHFA is “not raising fees on borrowers with good credit to lower them for those with bad credit,” Parrott explains, arguing the agency is instead "raising fees on loans there is little reason to discount so that it can better serve those who need the help.”

FHFA head Sandra Thompson has also addressed the “misunderstanding,” saying much of the hostility focuses on separate recently announced policies, which ended upfront mortgage fees for low- and middle-income first-time home buyers and upped fees for mortgage seekers for second homes.

"This change will better protect taxpayers in the long term and put the Enterprises on more durable footing, which will allow them to support affordable, sustainable mortgage credit across the economic cycle to the benefit of all Americans.

"The updated pricing framework will further the safety and soundness of the Enterprises, which will help them better achieve their mission. They will provide reliable liquidity to the market while also providing more targeted support for creditworthy borrowers limited by income or wealth. And they will do so with a pricing framework that is more accurately aligned to the expected financial performance and risks of the loans they back," said FHFA Director Sandra Thompson.

Do you think Congress should pass H.R.2876, The Free Market Mortgage Act of 2023?

Similar Legislation

• H.R.3041 — (Calvert, Ken [R-CA]) To cancel certain proposed changes to credit fees charged by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation
• H.R.2960 — (Lawler, Michael [R-NY]) To cancel certain proposed changes to credit fees charged by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation
• H.R.2928 — (Biggs, Andy [R-AZ]) To cancel certain proposed changes to credit fees charged by the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation