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Senators Push Back Against Federal Rule Raising Mortgage Fees for Some with Good Credit

A "for sale" sign is posted in front of a home in Sacramento, Calif., March 3, 2022. Rich Pedroncelli / AP Photo
A “for sale” sign is posted in front of a home in Sacramento, Calif., March 3, 2022. Rich Pedroncelli / AP Photo

By: Casey Harper | The Center Square

A group of Republican Senators have introduced the Middle Class Borrower Protection Act, legislation that would overturn a new federal rule that charges higher fees to certain home buyers with good credit and lower fees for buyers with worse credit.

“The average American has a credit score over 716,” said Sen. Mike Braun, R-Ind, who is helping lead the effort. “The Biden administration is making home ownership more difficult for everyday Americans by raising rates for most people with a credit score over 680 to subsidize riskier borrowers.”

The change came via the Federal Housing Finance Agency (FHFA) which changed the Loan Level Pricing Adjustments, essentially modifying the equation for how costs are decided for loan applicants.

The modified LLPA, which has been tweaked before, is a fee assessed after bankers evaluate the risk of lending them money, and the change potentially costs the affected borrowers thousands of dollars.

The rule has sparked major controversy and pushback from critics, who say the financial jargon amounts to a thinly veiled effort to penalize those with good credit to help those with bad credit in the name of equity.

Director Sandra Thompson of FHFA said in an update on the plan that it will “advance their mission of facilitating equitable and sustainable access to homeownership.”​​

“This is unfair to every American who has worked hard and managed their finances responsibly - they shouldn’t have to pay more and be penalized for the choices of others,” Sen. Roger Marshall, R-Kansas, said in a statement.

Adam Russell, a spokesperson for the FHFA, told The Center Square in May that “there is a good deal of misinformation” about the policy in question.

The formula for determining fees is complex and takes into account multiple factors, making it difficult to make broad statements about the motives behind the changes. The FHFA has repeatedly decried the characterization that fee change punishes those with better credit to help those with worse credit.

As The Center Square previously reported, proponents of the fee change argue the fee is often updated and that it is not fair to draw a line between the fee changes for the two groups, namely those with good and bad credit. They also point out that borrowers with worse credit will still pay much more than those with better credit.

Critics, though, point to the FHFA's appeal to "equitable" loan offerings as evidence of the plan's intent. That combined with major components of the change is enough to keep the rule embroiled in controversy.

The change in question applies only to certain loans backed by Freddie Mac and Fannie Mae. The Urban Institute has pushed back on Republicans' claims about the plan, arguing that when accounting for the cost of the mortgage insurance borrowers have to purchase when putting down less than 20%, the alleged subsidization does not hold up.

Republicans compared the effort to President Joe Biden’s recent federal action to forgive hundreds of billions of federal student loan debt, a measure that was overturned by the Supreme Court earlier this year.

“Folks that have worked hard to save up and build good credit shouldn't be punished for doing so,” said Sen. Rick Scott, R-Fla. “People who are responsible, like those who have paid off their student loans or Americans who’ve worked hard to build good credit, should be seen as role models, not piggy banks for the left.”

Related Story: 5 Things to Know About Biden’s New Mortgage Rules

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