Biden to hike payments for good-credit homebuyers to subsidize high-risk mortgages
Comment of the Day

April 21 2023

Commentary by Eoin Treacy

Biden to hike payments for good-credit homebuyers to subsidize high-risk mortgages

This article from The Washington Times may be of interest to subscribers. Here is a section: 

Mortgage industry specialists say homebuyers with credit scores of 680 or higher will pay, for example, about $40 per month more on a home loan of $400,000. Homebuyers who make down payments of 15% to 20% will get socked with the largest fees.

The new fees will apply only to Americans buying houses or refinancing after May 1.

Lenders and real estate agents say the changes will frustrate homebuyers with high credit scores and homeowners seeking to refinance because the rule punishes them for their relatively strong financial positions.

“The changes do not make sense. Penalizing borrowers with larger down payments and credit scores will not go over well,” Ian Wright, a senior loan officer at Bay Equity Home Loans in the San Francisco Bay Area, told The Washington Times in an email message. “It overcomplicates things for consumers during a process that can already feel overwhelming with the amount of paperwork, jargon, etc. Confusing the borrower is never a good thing.”

Eoin Treacy's view

When I first saw this news item, I thought it was a joke. However, it does appear to be true that people with better credit will be penalised for doing better in life.

There is a significant subset of the investment community that believes governments will engage in massive building programs to revitalise infrastructure. Forgive me for scepticism. The “vision thing” is sadly lacking in most countries.

In the USA, the basis for credit is under attack. In this alternative reality one might reasonably ask why not bailout zombie consumers when governments are happy to bail out zombie corporations. What happens when the people with poor credit and no savings cannot pay their mortgages? This is the legitimisation of the liar loans phenomenon from the before the credit crisis. Is the plan for the government to wade in and forgive mortgage debt?

We can comfort ourselves with the possibility these rules will never be enforced. However, they will damage confidence in the market and disincentivise owners from selling. That’s good news for homebuilders since they have tighter control over supply. Several shares, like Pulte Group and Green Brick are breaking out to new highs. 

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