New Mortgage Regulations to Impact Home Buyers with Good Credit Scores

Starting May 1, a new regulation under the Biden administration will require home buyers with good credit scores to pay more for their mortgages. This will result in an increase of approximately $40 per month on a $400,000 mortgage for borrowers with a credit score of around 680.

Federal Housing Finance Agency Imposes New Rules to Subsidize Mortgages for Higher-Risk Borrowers
The Federal Housing Finance Agency implemented these rules to subsidize mortgages for higher-risk borrowers who have lower credit ratings. According to a report from the Washington Times on Tuesday, experts suggest that these increased costs will support people seeking a mortgage with a lower credit rating.

Some industry professionals, such as Ian Wright, a senior loan officer at Bay Equity Home Loans, believe these changes are counterintuitive and will not be well-received by borrowers with larger down payments and credit scores. Wright suggests that this new rule will further complicate the already overwhelming process of securing a mortgage and confuse borrowers.

For years, the Federal Housing Finance Agency has aimed to provide more affordable housing options to consumers by supervising federally-backed home mortgage companies Fannie Mae and Freddie Mac. However, experts in the industry think that the new regulations will only confuse and frustrate consumers.

David Stevens, former commissioner of the Federal Housing Administration under the Obama administration, wrote in a social media post that the convoluted approach would not be effective, especially during a time when the industry is struggling to recover from the past 12 months. Stevens finds it almost insulting to the market, consumers, and lenders that these rules were introduced at the start of the spring market.

These regulations emerge as the housing market has suffered from several interest rate hikes by the Federal Reserve. The new rules will enable consumers with lower credit ratings and limited down payment funds to qualify for more favorable mortgage rates than they previously could have.

According to Sandra Thompson, the Director of the Federal Housing Finance Agency, the new regulations intended to enhance pricing support for borrowers with restricted purchasing abilities due to their income or wealth.
She stated that these rules would come with minimal fee adjustments. Although David Stevens acknowledges that there is a disparity in opportunities for low-income borrowers, particularly minority borrowers, to obtain affordable homes, he believes that manipulating prices is not the answer.

Pros:

• The new regulations will enable consumers with lower credit ratings and limited down payment funds to qualify for more favorable mortgage rates than they previously could have, which could help more people become homeowners.

• The regulations aim to enhance pricing support for borrowers with restricted purchasing abilities due to their income or wealth, which could help address disparities in opportunities for low-income borrowers, particularly minority borrowers, to obtain affordable homes.

Cons:
• Home buyers with good credit scores will have to pay more for their mortgages, which could make it harder for some people to afford a home or result in them having to settle for a smaller or less desirable home.

The new rules may confuse and frustrate consumers, and further complicate an already overwhelming process of securing a mortgage, according to some industry professionals.

Although we believe that mortgage lending should be inclusive of all credit levels, we must recognize the potential consequences for individuals who may lose the motivation to maintain good financial management. Additionally, it would be unfair to those who diligently maintain good credit by managing their spending habits and fulfilling their payment obligations.