President Joe Biden’s new mortgage eligibility strategy is generating criticism as costs for borrowers with strong credit are set to rise while fees for higher-risk borrowers are reduced. Some industry analysts say the change could result in lower property values for many homeowners in the future.
A new Federal Housing Finance Agency (FHFA) rule, which takes effect on May 1, is part of the administration’s effort to expand home ownership opportunities for low-income buyers, who tend to be people of color. But it has sparked a debate about whether the change could result in more mortgage defaults, causing a downturn in the housing market.
“Many high-risk borrowers brought in under the plan will buy homes in low-income neighborhoods,” said The Wall Street Journal in a recent editorial. “The working-class families who already live in those neighborhoods worked hard and saved for their homes. If their new neighbors default and face repossession, nearby homeowners may see their property values fall.”
The new eligibility matrix also cuts mortgage fees for borrowers with lower credit scores, while those with high credit scores will face higher fees than before.
David Stevens, a former federal housing commissioner and former CEO of the Mortgage Bankers Association called the move “unprecedented” in an interview with The New York Post.
“My email is full from mortgage companies and CEOs [telling] me how unbelievably shocked they are by this move,” he said.
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