How the US is Subsidizing High-Risk Home Buyers — at The Cost of Those With Good Credit

[Franklin Pierce]

A little-noticed revamp of federal rules on mortgage fees will offer discounted rates for home buyers with riskier credit backgrounds — and force higher-credit homebuyers to foot the bill, The Post has learned.

Fannie Mae and Freddie Mac will enact changes to fees known as loan-level price adjustments (LLPAs) on May 1 that will affect mortgages originating at private banks nationwide, from Wells Fargo to JPMorgan Chase, effectively tweaking interest rates paid by the vast majority of homebuyers.

The result, according to industry pros: pricier monthly mortgage payments for most homebuyers — an ugly surprise for those who worked for years to build their credit, only to face higher costs than they expected as part of a housing affordability push by the US Federal Housing Finance Agency.

How the US is subsidizing high-risk homebuyers -- at the cost of those with good credit

 

[Orangeburst]

What? The nation is in the gutter.

 

[MG1968]

What could go wrong?

 

[Dergibvol]

Article is misleading. Fannie and Freddie subsidize the whole industry. Without them rates aren't even close to what they are now.

 

[85SugarVol]

Did we learn nothing from the sub-prime mortgage disaster?

 

[85SugarVol]

Article is misleading. Fannie and Freddie subsidize the whole industry. Without them rates aren't even close to what they are now.

They shouldn’t be subsidizing a damn thing. Let the rates settle where the market dictates.

 

[85SugarVol]

The fee structure changes are the latest of several moves by the FHFA aimed at boosting affordability for what the agency calls “mission borrowers” – defined as first-time buyers, low-income borrowers and applicants from underserved communities.

Unbelievable

 

[McDad]

Three paragraphs which are the most troubling:

Under the revised LLPA pricing structure, a home buyer with a 740 FICO credit score and a 15% to 20% down payment will face a 1% surcharge – an increase of 0.750% compared to the old fee of just 0.250%.
Later in the article:
Fannie and Freddie are government-backed entities that buy up loans from mortgage lenders and either hold them as assets or resell them as mortgage-backed securities. Both have been in federal conservatorship since the housing market imploded during the Great Recession.

The two firms are bound by their charters to help improve access to affordable mortgage loans. They do this in part by using the “cross-subsidization” model, in which some borrowers are charged slightly more for loans while others are charged less.

This is a current practice which is now scheduled to be modified. If we don't want subsidy-driven-income-redistribution, we shouldn't have ever opened the door in the first place.
Once Fannie and Freddie targeted cross subsidization, the entities should have been sued and the BOD changed.
Once government and their agencies are given the ability to dictate what is done for whom/to whom, then it will maximize its own power and influence.

 

[rjd970]

Infuriating.

 

[Vol737]

Did we learn nothing from the sub-prime mortgage disaster?

Zero. Zilch. Nada.

 

[Vol737]

Awesome! Socialized mortgage financing. Was this one of the Easter Eggs planted in Biden’s brain trust “Build Back Better”? Because I don’t see where the FHFA could just throw out this gimmick as policy on their own. I’m voting for whoever will dissolve half our govt agencies.

 

[85SugarVol]

Here’s Clinton back in ‘95 sowing the seeds of the Financial Crisis that would come to fruition 10 years later.

to help moderate income families who pay high rents but haven't been able to save enough for a downpayment, to help lower income working families who are ready to assume the responsibilities of home ownership but held back by mortgage costs that are just out of reach, to help families who have historically been excluded from home ownership.

Democrats are once again looking to do the same damn thing now. Unbelievable.

Remarks on the National Homeownership Strategy | The American Presidency Project

 

[85SugarVol]

Three paragraphs which are the most troubling:

Under the revised LLPA pricing structure, a home buyer with a 740 FICO credit score and a 15% to 20% down payment will face a 1% surcharge – an increase of 0.750% compared to the old fee of just 0.250%.
Later in the article:
Fannie and Freddie are government-backed entities that buy up loans from mortgage lenders and either hold them as assets or resell them as mortgage-backed securities. Both have been in federal conservatorship since the housing market imploded during the Great Recession.

The two firms are bound by their charters to help improve access to affordable mortgage loans. They do this in part by using the “cross-subsidization” model, in which some borrowers are charged slightly more for loans while others are charged less.

This is a current practice which is now scheduled to be modified. If we don't want subsidy-driven-income-redistribution, we shouldn't have ever opened the door in the first place.
Once Fannie and Freddie targeted cross subsidization, the entities should have been sued and the BOD changed.
Once government and their agencies are given the ability to dictate what is done for whom/to whom, then it will maximize it's own power and influence.

The Banks knew full well that Fannie & Freddie were under strict orders to purchase the loans.

So they loaned to anyone with a pulse, as fast as they could. Voila - disaster.

 

[Orangeburst]

Somebody math. What is an extra 1% on say a 30year note and $300K loan?

 

[85SugarVol]

Somebody math. What is an extra 1% on say a 30year note and $300K loan?

Based on their $400k example - about $15k over the life of the loan.

 

[VolStrom]

Biden is now putting his thumb on the mortgage industry by forcing mortgages taken out by people with good credit scores to pay more for their loans than people with lower credit scores.

"If you have a high credit score, and 680 is a good credit score, you have to pay more. And we're talking about real money. This could be $100 a month more depending on the size of your loan. So it makes no sense," Roschelle said. "And by the way, this isn't about first-time homebuyers. There's nothing in this rule that says it applies to first-time homebuyers. It applies to anybody borrowing money that's insured by FHA. It's madness."

Real estate expert shreds Biden rule punishing homebuyers with good credit: 'It's madness'

 

[McDad]

This is a current practice which is now scheduled to be modified. If we don't want subsidy-driven-income-redistribution, we shouldn't have ever opened the door in the first place. Fannie and Freddie enacted a policy called targeted cross subsidization to give a leg up to sub par borrowers at the expense of above par borrowers.
Once Fannie and Freddie targeted cross subsidization, the entities should have been sued and the BOD changed.
Once government and their agencies are given the ability to dictate what is done for whom/to whom, then it will maximize it's own power and influence.

 

[utvolpj]

The expert complains about student loans (ones that are really easy to get) and then states this:

Roschelle conceded complying with the rules, regulations and various documentation when applying for a mortgage is already "brutal."

"They say it's a financial colonoscopy and it's brutal," Roschelle said. "And guess what, if you're borrowing from your local community bank that's under tremendous pressure, it's even harder."

Scan and email some documents is brutal?

 

[GoVols1998Yeah!]

Of course when I finally have great credit, it quickly becomes a negative. I guess the credit score improvement industry will add a new customer base. "How do I lower my credit score without tanking it so I can avoid the merit-based penalty?"

 

[volinbham]

Somebody math. What is an extra 1% on say a 30year note and $300K loan?

on a 300K it amounts to just under $200/month

based on the post from McDad it appears it's an extra .75 (already paying extra .25) and in that case it's about an extra 150/month.

not exactly chump change. in the 1% range it amounts to about a 11% increase in monthly payment (300K/30yr 6% vs 7%: 1799/mo vs 1996/mo)

EDIT: It appears to be a fee rather than change in interest rate. I'm guessing it's a % of the loan amount as a fee.

the article suggests about $40/month for a $400k loan.

"When absorbed into a long-term mortgage rate, the increase is the equivalent of slightly less than a quarter percentage point in mortgage rate. On a $400,000 loan with a 6% mortgage rate, that buyer could expect their monthly payment to rise by about $40, according to calculations by Stevens.

Meanwhile, buyers with credit scores of 679 or lower will have their fees slashed, resulting in more favorable mortgage rates. For example, a buyer with a 620 FICO credit score with a down payment of 5% or less gets a 1.75% fee discount – a decrease from the old fee rate of 3.50% for that bracket."

Also appears that poorer credit borrowers still face higher fees but they are about half what they used to be (old was 3.5% fee; new 1.75% fee).

So poorer credit borrowers still pay a higher fee but the delta is changed significantly from a prior difference of 3.25 to the new of .75).

 

[KB5252]

At least they learned something from the Fannie and Freddie debacle.

Our government has lost their minds. When you think they can't be more irresponsible they prove you wrong.

 

[McDad]

Of course when I finally have great credit, it quickly becomes a negative. I guess the credit score improvement industry will add a new customer base. "How do I lower my credit score without tanking it so I can avoid the merit-based penalty?"

You can also look for "hard money" lenders in your area. They are reputable but bypass all the fed requirements in lending. Your rate will not be as good though.

 

[McDad]

on a 300K it amounts to just under $200/month

based on the post from McDad it appears it's an extra .75 (already paying extra .25) and in that case it's about an extra 150/month.

not exactly chump change. in the 1% range it amounts to about a 11% increase in monthly payment (300K/30yr 6% vs 7%: 1799/mo vs 1996/mo)

I've held a mortgage since 1999. I do not recall ever hearing about that orginal .25% fee. I wonder how long that has been there?

 

[McDad]

At least they learned something from the Fannie and Freddie debacle.

Our government has lost their minds. When you think they can't be more irresponsible they prove you wrong.

To be fair, this has nothing to do with the factors which lead to the collapse of 08. There were different mechanism then compared to this proposal. It doesn't mean there won't be a housing bubble burst in the future, but the magnitude of the 08 crash was only experienced one other time in American history.

In fact, we are more likely to see continued inflation. And if that is the case, all of us should be buying more real estate and borrowing as much as possible.

 

[VolStrom]

To be fair, this has nothing to do with the factors which lead to the collapse of 08. There were different mechanism then compared to this proposal. It doesn't mean there won't be a housing bubble burst in the future, but the magnitude of the 08 crash was only experienced one other time in American history.

In fact, we are more likely to see continued inflation. And if that is the case, all of us should be buying more real estate and borrowing as much as possible.

So borrow money to buy real estate is what you think everyone should do? No thanks.