RALEIGH —State Treasurer Dale Folwell issued a statement on May 30 calling the Biden administration’s new mortgage fee policy “catastrophic.”
As of May 1, new homebuyers and those refinancing their current loans who have good credit scores of 680 or higher now face an additional fee on their home loans, per the Biden Administration’s Federal Housing Finance Agency (FHFA).
“Most Americans have made tough choices that resulted in higher credit ratings, only to be punished,” Folwell said. “We’ve seen before the catastrophic results when lawmakers and central planners in Washington meddled in the natural order of supply-and-demand economics in the housing market.”
The new fee is called the Loan-Level Price Adjustment (LLPA) and will be largely overseen by federally backed mortgage lenders Fannie Mae and Freddie Mac.
FHFA’s LLPA fees of up to 0.375% on mortgages taken out by those with good credit will end up subsidizing mortgages for those with low credit scores. People able to put down payments of 15% or higher on a home purchase will be hit with the highest fees under the policy.
According to Folwell’s release, the treasurer had recently attended a North Carolina Homebuilders Association event and the attendees had “serious concerns” about the new policy.
“The fees paid by those who have played by the rules and done the right things will increase their mortgage payments,” said Folwell. “Homebuyers already are paying higher mortgage interest rates in the Biden economy, and this new social progressive policy saddles them with an even higher burden. It is sheer folly to upend long-established financial principles, especially at a time when there are signs the housing market could be headed for a negative correction amid ongoing concerns about a potential recession.”
Folwell’s statement cited National Association of Realtors’ data that shows home sales have declined more than 23% in April year-over-year numbers.
Another concern highlighted by the real estate and mortgage lender industries is the of raising interest rates by the Federal Reserve at a pace not seen since the 1980s.
“We all want our friends and neighbors to achieve the American Dream of homeownership. It’s an important way to create generational wealth,” Folwell said. “But robbing Peter to pay Paul is not the way to go about it. Reducing taxes, abandoning fiscal policies that drive up interest rates, making use of existing affordable housing programs and increasing financial literacy are time-tested approaches that work best.”
Folwell was among 34 fiscal officers from 26 states who joined a May 1 letter led by Pennsylvania State Treasurer Stacy Garrity urging President Joe Biden and FHFA Director Sandra L. Thompson to “take immediate action to end this unconscionable policy.”
“This new policy will force homebuyers with good credit to pay more on their mortgage every single month,” the letter to Biden and Thompson reads. “In other words, the policy will take money away from the people who played by the rules and did things right — including millions of hardworking, middle-class Americans who built a good credit score and saved enough to make a strong down payment.
“Incredibly, those who make down payments of 20 percent or more on their homes will pay the highest fees — one of the most backward incentives imaginable. For decades, Americans have been told that they will be rewarded for saving their money and building a good credit score,” reads the letter. “This policy turns that time tested principle upside down.”
The letter goes on to label the new fees as “junk fees” that will “subsidize higher-risk borrowers by handing out better mortgage rates to people with lower credit ratings who have saved less for a down payment.”
Additionally, the letter says the policy “will be a disaster” and “amounts to a middle-class tax hike that will unfairly cost American families millions upon millions of dollars.”
“We urge you to take immediate action to end this unconscionable policy,” the letter says in closing.
The Garrity-led letter was followed by another letter issued to Biden and Thompson on May 31 from 18 Republican governors.
“Your actions are threatening the American housing system,” wrote Govs. Brian Kemp (GA) and Mike Parson (MO), who spearheaded the letter.
“Disincentivizing good credit behavior and penalizing responsible Americans during an inflation crisis — which required the Federal Reserve to increase interest rates 10 consecutive times in a year — is wrong and unreasonable,” the governors’ letter reads in part.
The governors also ask Biden to rescind the new policy and state in closing, “If you are unwilling to do so, Congress must take action.”