5 Things to Know About Biden’s New Mortgage Rules

1. Taxes Individuals with Good Credit Scores

With mortgages and housing under tight regulation in the United States, the Biden administration and its Progressive Democrat allies have announced a new mortgage rule meant to heavily penalize those with good credit scores and help individuals with low ones. Individuals with credit ratings above 740 could pay around $375 extra in the long run, while individuals with scores below 639 could potentially save up to $6,000. Republican lawmakers in Congress and analysts say that the new changes by the administration are an attempt to create "equity" in the housing markets and create a "culture of dependency." Lawmakers and experts familiar with the housing market also say that the policy is akin to the administration's student loan forgiveness plan, which would punish individuals who made smart financial decisions regarding loan payments only to have the government incentivize low credit scores. David Stevens, a former Federal Housing Administration Commissioner under the Obama administration, criticized the plan stating that there are better ways to help minorities obtain homeownership and that the current proposal is "not the way to do it."

2. Effects Minority Communities

With the Biden administration focusing so heavily on woke-left-wing progressive policies, the new mortgage rules are one of many measures to provide equity to minorities while going after the middle class and beyond for having good credit sources. Experts note that during the 2008 Financial Crisis, people who obtained mortgages they could not afford ruined their lives, particularly individuals in the Hispanic and Black communities. As a result of the housing crash, the median network for Hispanic households decreased by 66% from 2005 to 2006, and the median net worth of black households declined by around 53% thanks to federal government intervention. The Biden White House officials blame the current homeownership gap on denied mortgages to black applicants. According to the American Enterprise Institute (AEI), black mortgage holders have been almost 50% more likely to default than white borrowers in the past few years. Two years ago, the mortgages for black homeowners were more than double as likely to be in forbearance than those of white homeowners.

3. Change in Loan-Level Price Adjustment (LLPA)

One of the new changes includes altering the way in which LLPA fees - a risk-based payment added onto a home-mover's closing costs - for buyers are calculated. Loans from the government-backed firm Fannie Mae and Freddie Mac, supported by the Federal Housing Finance Agency (FHFA), will be impacted by the change of 60%. Americans with average credit scores of 720 will have to pay less than those with lower ratings, but individuals with scores under 680 will see the penalty reduced starting in May. Individuals with credit scores ranging from 740 to 759 and a downpayment between 15 to 25% are in a worse category, given that they face an LLPA worth 1% of the market, different from the old 0.25% fee. Home buyers who save the most money must have credit scores below 639 and a downpayment between 95 to 97%. Such individuals will witness their LLPA decrease from 3.75% of the property value to 1.75%.

4. Major Cost

Regarding the cost of such a mortgage rule, individuals with credit scores of 620 and below will take out a 95% loan-to-value (LTV) deal, which measures comparing the amount of one's mortgage with the appraised value of the property. Those with a $300,000 property will pay a fee of 1.75% under the new system, which amounts to $5,250. In the previous system, an individual had to pay an LLPA of$ 11,250 for mortgages, but under the new proposal, a borrower can save $6,000. Home Buyers with credit scores of 740 who obtain a similar loan to those with a credit score rank of 620 must pay $375 more than they did previously. Officials say that previously borrowers had to pay a 0.25% LLPA on a 75% LTV $300,000 loan. Mortgage firms familiar with the new changes say other factors, including a borrower's income, assets, job stability, prior housing, and rent payment history, among other items, will also affect costs. Experts say that the mortgage changes will present a problem for middle-class wealthy borrowers, who will find it more expensive and much harder to purchase a home.

5. Inflation Affect

Experts say that given the interest rates are high because of the record-setting deficit spending from the administration and its progressive allies, inflation in the housing will worsen under the Biden administration's new plan. Officials note that the measures are similar to when federal regulators tried to pursue universal homeownership in the US in 2007, which led to individuals with bad credit scores being unable to pay back their debt on time and pay for the mortgages on their homes on time. What is different from 2008 is the current inflation levels and interest rates. The rental vacancy is at its lowest since 1984, and according to the Census Bureau, the homeowner vacancy rate is also at its lowest. A large part of this is because of the $1.9 trillion American Rescue Plan financed by the Federal Reserve, which led to a 25% increase in home prices. The administration also doubled trade duties on softwood lumber imported from Canada to 20%, maintaining former President Donald Trump's tariffs on Chinese construction imports, which according to the National Association of Home Builders, has led to increased costs in homebuilding.