Why should home buyers who have good credit pay for those who don’t?

I’m not sure whether to start this column with, “Just when you think you’ve seen it all,” or, “They have to be kidding, right?”

Actually, based on this week’s topic, I’m sad to say either one will do.

It’s no secret that the Biden administration has long been a proponent of income redistribution, but this latest rule from his administration that got teeth on May 1 looks to me like they want that to now carry over to mortgage lending.

This week, I am going to ask you to help me wrap my head around a law that President Biden put into play on May 1 that now requires “good-credit” home buyers paying more monthly to subsidize costs for high-risk buyers. 

Yes, I am serious. Under the new rule, home buyers with good credit scores of 680 or higher will now have the “privilege” of paying an extra $40 a month for a $400,000 mortgage. 

But wait, there’s more. That $40 a month will go to subsidize higher-risk home buyers, who will also get lower interest rates.

From everything I’ve read, the rule changes are part of the Federal Housing Finance Agency’s mission to provide “equitable and sustainable access to homeownership” and to strengthen capital at Freddie Mac and Fannie Mae.

On paper that sounds commendable. As does Biden’s hopes to make it easier for those borrowers who have historically had a hard time getting credit.

But from where I see it, it looks like the recipe for the ultimate lose/lose situation.

Here’s why: For openers, you are putting additional financial strain on home buyers who have done nothing wrong, other than to have earned a strong credit score. So, now, while they may still buy that new home, they will have less disposable income, thanks to higher interest rates and a more expensive monthly payment. 

Less disposable income could certainly mean fewer purchases of new furniture for the home, or if they do buy, we could see smaller tickets.

That, to me, is a loss.

Then, by juggling the number to allow higher-risk home buyers to buy a home, I see that as setting those buyers up for failure. I certainly don’t have a crystal ball, but I don’t think I need one to see a rash of foreclosures down the road.

That, to me, is also a loss.

So, where is the win? I’m not sure if there is one.

But those of you who know me know that I’ve been wrong before. Lots of times. Let’s hope this is another one of them.

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