In a move that has been criticized by conservatives, President Joe Biden’s administration has implemented a new rule that will require responsible homebuyers to subsidize loans for higher-risk borrowers. Under this rule, lenders will be required to offer mortgage loans to people with lower credit scores and smaller down payments, while also imposing fees on borrowers with higher credit scores and larger down payments.
“The changes do not make sense. Penalizing borrowers with larger down payments and credit scores will not go over well,” said Ian Wright, a senior loan officer at Bay Equity Home Loans, told the Washington Times in an email.
“It overcomplicates things for consumers during a process that can already feel overwhelming with the amount of paperwork, jargon, etc. Confusing the borrower is never a good thing.”
The Biden administration has defended this move as a way to address racial inequality in homeownership, arguing that minorities are more likely to have lower credit scores and struggle to come up with a large down payment. However, critics argue that this rule is not the solution and will actually end up hurting responsible homebuyers.
The new rule is based on a program called “risk-based pricing,” which was first introduced in the early 2000s.
This program allowed lenders to offer lower interest rates to borrowers with higher credit scores and larger down payments while charging higher rates to those with lower credit scores and smaller down payments. However, the new rule takes this a step further by imposing fees on responsible homebuyers to subsidize loans for higher-risk borrowers.
Conservatives argue that this is unfair to responsible homebuyers who have worked hard to maintain good credit and save for a down payment. They argue that this new rule will punish responsible behavior and create a moral hazard by encouraging people to take on more debt than they can afford.
Furthermore, they argue that the root cause of racial inequality in homeownership is not access to credit, but rather socio-economic factors such as income, education, and family structure. Instead of imposing fees on responsible homebuyers, they argue that the government should focus on addressing these underlying issues.