On Tuesday, Republican representatives Patrick McHenry and Warren Davidson wrote to the Biden administration, threatening legal action if the federal government did not alter its policies that increase mortgage rates for persons with strong credit while assisting those with terrible credit.
House Financial Services Committee Housing and Insurance Subcommittee Chair Davidson of Ohio and House Financial Services Committee Chair McHenry of North Carolina have each stated their intention to abolish the statute if the Federal Housing Finance Agency does not.
According to Davidson, “It’s a socialist redistribution of wealth.” Unless the FHFA revises this regulation, it will be up to Congress to do so.
They wrote to Sandra Thompson, director of the Federal Housing Finance Agency (FHFA), claiming that the policy shifts “violate the fundamental principle of risk-based pricing,” according to which lower-risk borrowers should pay less for access to credit than higher-risk borrowers. The letter was also sent to DailyMail.com.
Those who borrow money responsibly will be unfairly hit by the new tax. Buyers will need to take on more debt to qualify for a mortgage with a smaller down payment.
Mortgage payments can be affected by the initial loan cost and the interest rate set by the Federal Reserve. Loan interest rates are higher for high-risk consumers like those with poor credit. The situation is analogous to the typical increase in vehicle insurance premiums following an accident.
A new law that limits the impact of rising mortgage interest rates for homeowners with poor credit ratings will take effect on May 1. However, they will still receive preferential interest rates compared to those offered to borrowers with poor credit.
A $400,000 mortgage would cost $40 extra per month for borrowers with credit scores of 680 and higher. First-time buyers who have only been able to save enough for a 15%-20% down payment will be hit the hardest.
The prices of properties will go up on May 1.
Fannie Mae and Freddie Mac are the two largest federal mortgage guarantee corporations, and they are regulated by the Federal Housing Finance Agency (FHFA). Most of the damage will be done to houses.
The Federal Reserve is hoping to limit inflation by raising interest rates, but this move has already impacted the housing market. The typical rate of interest on a mortgage loan is currently over 6%.
Director of Freddie Mac Sandra Thompson explains that these changes “increase price support for purchase borrowers who are limited by income or wealth.” She claims that “minimal” price adjustments are all that’s needed to maintain a thriving market.
The Federal Housing Finance Agency proposed a plethora of new rules on April 19 under the heading “Fair Lending, Fair Housing, and Equitable Housing Finance Plans.” Stricter regulations for the mortgage sector may help close the difference in house ownership rates between whites and blacks.
White house ownership in the fourth quarter of 2022 was at 74.5 percent, while black home ownership was at 44.9 percent.
It said it was attempting to benefit black families and stimulate growth in economically underserved communities.
The applicant’s credit history is a major factor in determining the interest rate and whether or not the mortgage application is approved. The rate at which mortgage applications from people of African origin are denied is higher than that of any other racial or ethnic group in the United States.
Property values in areas with a disproportionate number of black residents tend to be lower, according to the Federal Housing Finance Agency.