Biden’s mortgage plan faces criticism.

Controversy Erupts Over Biden Administration’s Mortgage Rate Changes

The Biden administration has once again sparked conservative outrage, this time by adjusting mortgage rates at Freddie Mac and Fannie Mae. The administration claims that these changes are a long-anticipated update intended to “bolster safety and soundness,” while critics argue that it is a misguided attempt to inject the wrong kind of equity into the housing market.

The Backlash

The controversy erupted when Federal Housing Finance Agency Director Sandra Thompson announced a rejigging of mortgage fees at Fannie and Freddie, which collectively originate more than half of all mortgages in the U.S. The change would, in the aggregate, see costs go up for buyers with good credit and down for those with bad credit. The backlash was fierce and widespread.

• Former National Economic Council Director Larry Kudlow said on Fox News, “Where diversity, equity, and inclusion and redistribution reign over incentives to promote opportunity and growth, we have a new outrage. It’s another example of Biden’s war against success.”
• Sen. Tim Scott (R-SC), a Republican and likely presidential candidate, said the move could make it harder for middle-class families to make homeownership a reality.
• 18 Republican senators issued a letter blasting the proposal, while a group of House Republicans announced it is seeking to overturn the rule.
• The Republican National Committee even cried racism with a newsletter blast titled “Biden Admin Targets Asian American Homebuyers.”

To be clear, home buyers with good credit scores and larger down payments will still pay less overall than those with bad credit scores and smaller down payments. However, the rate changes are mostly negative for those with credit scores above 680 and universally neutral or positive for those with credit scores below 680 and those making a down payment of 5% or less. For those with higher credit scores, the new fees could be up to $3,200 higher over the course of a loan. The rule went into effect May 1.

The FHFA Responds

The FHFA responded to the outcry with a press release on April 25 that promised to set the record straight. Thompson said the fee increases were part of a wider effort to raise rates on second-home loans, high-balance loans, and cash-out refinances, while lowering fees for first-time homebuyers with lower incomes. FHFA officials also point out that those with exceptionally high credit scores of 780 and above will mostly see their fees go down relative to the old scale.

The housing industry mostly opposes the move as well. Mortgage Bankers Association CEO Robert Broeksmit sent his own letter arguing the timing is bad — mortgage payments overall have soared by 85% since 2020, and the summer buying peak is nigh. The National Association of Realtors and National Association of Home Builders also spoke out against the measure.

But the Biden administration’s FHFA insists the move is simply about giving would-be homeowners a fair shot at achieving the American dream. “It had been many years since a comprehensive review of the Enterprises’ pricing framework was conducted,” Thompson said in her statement. “The objectives were to maintain support for purchase borrowers limited by income or wealth, ensure a level playing field for large and small lenders, foster capital accumulation at the Enterprises, and achieve commercially viable returns on capital over time.”