Sen. Mike Braun (R-IN) will introduce a bill on Thursday aimed at rolling back the Biden administration’s recent mortgage rule that critics say subsidizes borrowers with lower credit scores by charging higher mortgage fees to better scorers.
In May, the Federal Housing Finance Agency enacted the rule, which “recalibrated” its pricing framework and removed upfront fees for those borrowers with lower incomes. The changes were done to update pricing based on the risk profile of the mortgages but also to “maintain support for purchase borrowers limited by income or wealth.”
The move by President Joe Biden’s administration was immediately met with criticism from Republicans and even some Democrats for using mortgage pricing to “enforce equity.” The House of Representatives voted 230-189 to revoke the rule last month, with 14 Democrats joining their Republican colleagues.
Now, a companion bill is being introduced by Braun and Sen. Roger Marshall (R-KS). The senators are also joined by Sens. Thom Tillis (R-NC), Cindy Hyde-Smith (R-MS), Jerry Moran (R-KS), Tom Cotton (R-AR), John Cornyn (R-TX), John Barrasso (R-WY), Ted Budd (R-NC), Roger Wicker (R-MS), and Kevin Cramer (R-ND) in introducing the measure.
“The average American has a credit score over 716. 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. I urge my colleagues in the Senate to quickly vote to overturn this unfair rule that penalizes fiscal responsibility,” Braun said.
FHFA Director Sandra L. Thompson released a statement earlier this year to address what she said are “misconceptions” about the rule. She denied that borrowers with better credit scores are subsidizing those with lower scores.
“Higher-credit-score borrowers are not being charged more so that lower-credit-score borrowers can pay less,” she said. “The updated fees, as was true of the prior fees, generally increase as credit scores decrease for any given level of down payment.”
“Some updated fees are higher and some are lower, in differing amounts,” she added. “They do not represent pure decreases for high-risk borrowers or pure increases for low-risk borrowers. Many borrowers with high credit scores or large down payments will see their fees decrease or remain flat.”
While the legislation would rescind the controversial rule, it would also add restrictions to the FHFA adjustments in regard to the single-family pricing framework. Specifically, any changes would be temporarily prohibited for 90 days after receiving a Government Accountability Office report analyzing the methodology, modeling, and data used to justify the move.
Further, it would require the agency to employ risk-based pricing when it makes revisions to the Loan-Level Price Adjustment Matrix. It would prohibit fees based on debt-to-income ratios from being added to the LLPA as well.