The White House’s proposal to effectively incentivize financially insecure homebuyers, whilst penalizing those who are financially secure, has come under criticism from former officials.
David Stevens, who previously served as federal housing commissioner for the Department of Housing and Urban Development under Barack Obama, called the move “unprecedented”. Under the proposal set to come into effect in May, Americans purchasing a new home or refinancing their existing mortgage can expect to pay higher mortgage rates and monthly fees if they have a higher credit score. In comparison, those with lower credit scores and smaller down payments will be provided better rates.
Stevens criticized the proposal in a recent interview with Fox News, arguing that “We can do better programs to help more minorities get into homeownership. This is not the way to do it.” The move will be implemented in part by government-backed mortgage corporations Fannie Mae and Freddie Mac, and will see them prioritize lowering fees for potential homebuyers with lower credit scores. This strategy represents a departure from their traditional risk-driven assessment model.
Stevens noted that he received an email from a mortgage lender executive who claimed that the new policy incentivizes borrowers to worsen their credit score prior to applying for a loan in order to improve their fee structure. Robert Broeksmit, CEO of the Mortgage Bankers Association, also criticized the policy in a letter to the Federal Housing Finance Agency, stating that it would raise costs for typical homebuyers amid an already stressed housing market.
The proposal is consistent with White House policies attempting to address claims of racial income and wealth inequality. President Joe Biden issued an executive order mandating a “whole-of-government approach to racial equity and support for underserved communities”, calling on federal agencies to embed the philosophy into all aspects of their decision-making. The order specifically mentions the need to “expand access to capital, preserve housing and neighborhood affordability, root out discrimination in the housing market, and build community wealth.”