A new rule which took effect May 1, 2023 forces good-credit home buyers to pay more for their mortgages in order to subsidize loans to higher-risk borrowers. This is affecting all mortgages originating at private banks across the country.
According to mortgage industry specialists, borrowers with a credit score of about 680 or higher will pay around $40 more per month on a $400,000 mortgage under these new rules from the Federal Housing Finance Agency. Homebuyers who make down payments of 15% to 20% will get hit with the largest fees. The extra cost is to help subsidize people with lower credit ratings also looking for a mortgage. Many believe that this is effectively a penalty to be paid by borrowers with larger down payments and higher credit scores. It makes borrowing for a home more expensive for those with good credit scores to subsidize loans to higher-risk borrowers. Under the new rules, consumers with lower credit ratings and less money for a down payment would qualify for better mortgage rates than they otherwise would have.
The Federal Housing Finance Agency, which oversees federally backed home mortgage companies Fannie Mae and Freddie Mac, has long sought to give consumers more affordable housing options. According to Federal Housing Finance Agency Director Sandra Thompson, these new rules are designed to increase pricing support for borrowers limited by income or by wealth. The rules are an attempt to try and narrow the gap in access to credit, especially for home buyers who have lower down payments and lower credit scores.
According to lenders and real estate agents, this new legislation could not have come at a worse time. The rule is taking effect in a period when the housing market is struggling in the wake of multiple interest rate increases. Many feel that these changes will frustrate homebuyers with high credit scores and homeowners looking to refinance because the rule punishes them for their relatively strong financial position.