President Biden's new bill aimed at helping people with lower credit scores may negatively affect those with good credit scores. The bill proposes penalizing those with good credit scores to provide relief to those who have struggled with their finances.

While the intention of the bill is noble, the approach is flawed. Penalizing people with good credit scores is unconstitutional and goes against the basic principles of fairness and equality. People with good credit scores have worked hard to establish their creditworthiness and should not be punished for their financial success.

The bill's proposal to penalize people with good credit scores to help those with lower credit scores is also economically unsound. Penalizing people with good credit scores will discourage responsible financial behavior and may lead to increased defaults and bankruptcies. This will ultimately hurt the economy as a whole.

It could start a slippery slope of consumers defaulting across the board because the current administration is driven by equity at the forefront of everything they enact — without understanding or perhaps caring what it will do to people who have worked hard to have outstanding credit. Our government should not leverage our credit scores to favor one party over another, especially by penalizing responsible consumers.

Furthermore, the bill could create a disincentive for people to maintain good credit scores. If people know that their good credit scores will be penalized, they may be less motivated to maintain their creditworthiness. This could lead to a deterioration of credit scores across the board, which would be detrimental to the economy.

While Biden's new bill intends to help people with lower credit scores, penalizing those with good credit scores is both unconstitutional and economically unsound. The government needs to find a better solution that promotes financial responsibility and helps those in need without punishing those who have worked hard to establish their creditworthiness.

Fannie Mae and Freddie Mac's new loan-level price adjustment matrix will raise fees for mortgage borrowers with high credit scores and lower them for those with low scores.

Most people believe it's unfair to penalize borrowers with good credit scores while, at the same time, rewarding those with lower scores. However, most borrowers won't see a significant increase in their monthly mortgage payments. Hopefully, these changes will facilitate equitable and sustainable access to homeownership, but in a way that doesn’t target those responsible with their credit and who have spent years building it.

We understand both sides of this issue because we have helped thousands work so hard to rebuild their credit so that they have access to better jobs, housing, and necessary loans. Still, at the same time, it doesn’t seem fair to penalize those who worked hard to have good credit or those who also worked incredibly hard to rebuild bad credit. Penalizing one to favor another doesn’t seem like a viable option.

The administration could create a tiered program applying the interest rates without adding penalties to others. This proposed legislation comes at a time when people are already feeling the squeeze of a recession where every penny counts for most families.

According to Outkick.com, which interviewed a California mortgage broker, this will not end well. “The changes do not make sense. Penalizing borrowers with larger down payments and better credit scores will not go over well,” he explained. Another loan officer said, “It’s going to be a challenge trying to explain to somebody that says, ‘I worked my whole life for high credit, and I’ve put a lot of money down, and you’re telling me that’s a negative now?’"

Who the Mortgage Bill Affects

The proposed rule is set to go into effect on May 1st. The good news is that this proposed rule will not affect existing mortgages or anyone who does not hold a loan with Fannie Mae or Freddie Mac. That’s a very good silver lining! It’s also worth noting that you can still AVOID paying more fees by putting less down. The amount of the down payment will directly affect the fees. So, if you have great credit, just put less down - in theory. But always talk to a real estate expert to make sure you make a sound financial decision. With this rule being new to us, there is still more to learn about navigating it to best benefit you.

What can people do to stop this rate hike?

Unfortunately, there is no direct way for people with good credit scores to fight the new legislation that raises mortgage fees for high-credit buyers. However, they can contact their elected representatives and express their concerns about the new rule, which they believe is unfair to those who have worked hard to build their credit scores.

Additionally, they can explore other mortgage options and consult with a reputable law firm like Bisnar|Chase, which has experience in class action litigation and may be able to provide legal guidance on how to navigate the new regulations. Perhaps we will see lawyers pushing back as unconstitutional.

References:

[1] https://nypost.com/2023/04/16/how-the-us-is-subsidizing-high-risk-homebuyers-at-the-cost-of-those-with-good-credit/

[2] https://www.newsweek.com/biden-raises-costs-homebuyers-good-credit-help-risky-borrowers-1795700