A former Obama administration official ripped a proposed Biden administration rule Thursday, saying it incentivized people to “worsen their credit.”
“This is really convoluting the entire discipline and credit risk pricing structure that Fannie Mae and Freddie Mac have followed since their inception,” David Stevens, who served as director of the Federal Housing Authority (FHA) during the Obama administration, told Fox News host Sandra Smith. (RELATED: ‘Serious Danger’: Elon Musk Predicts Banking Crisis After Real Estate ‘Anvil’ Drops)
A rule from the Federal Housing Finance Agency (FHFA) that would increase fees on borrowers with high credit scores in order to subsidize those with lower credit scores is slated to take effect May 1, Fox News reported. A home buyer with a $400,000 mortgage and a credit score of 680 could pay $40 more a month under the proposed rule.
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“You have always been incentivized to have better credit and pay your bills on time because you will be rewarded with lower costs and lower fees to get into a home,” Smith observed. “David, obviously, the peril in this is that you are incentivizing bad credit scores to get lower costs. There’s only so long it could last. You won’t be able to pay for the risky home buyers if people are incentivized to have lower credit.”
“Yeah, I’ve literally just got an email from an executive with a mortgage lending company, goes ‘So I guess we have to teach borrowers to worsen their credit before they apply for a mortgage to get a better price,’” Stevens said in response.
Stevens questioned the wisdom of the proposed rule.
“Using Fannie Mae and Freddie Mac for these sort of political purposes may not be the best thing to do, and frankly, I think it violates the entire discipline the two companies have operated under,” Stevens said.
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