E183: Home buyers getting punished for good credit scores? Shownotes:

If you haven’t heard, the government is giving people with good credit scores higher interest rates when it comes to getting a home loan. WHAT? Why are they punishing good credit? 

Well, as usual, David Sidoni is here to give you the REAL story behind those clickbait headlines, and it’s not quite as bad as it sounds. But, keep listening so you know what’s up and how it affects you. 

Here are some takeaways from today’s conversation:

• An overview of GSEs and how they work
• Who will be affected by loan level price adjustments
• A look at the numbers and data (of course)
• Why this isn’t exactly the subsidy it sounds like

Episode Highlights:

[02:26] What’s Going On?

So, these headlines tell you that the government is the one behind all this. Well, not exactly. It’s a government-sponsored enterprise (GSE), which, in this case, is supervised by the Federal Housing Finance Agency and is run like a for-profit business. Weird, right? They’re called Fannie Mae and Freddie Mac and they are the ones that give out the loans. BUT it gets wilder. These loans, although the organizations are advised by a government-appointed director, aren’t backed or insured by government money. And it’s these ones that are facing the good credit score punishment, not ones that ARE backed by government money, so FHA, USDA, and VA loans are safe. 

[11:11] So, What Should You know?

So, those with higher down payments and higher credit scores usually pay less, but with this new policy, you’ll still pay less than people with low down payments and low credit scores, but the difference isn’t that big. So, it’s not as good for lower score people and not as bad for higher score people. Now, upfront fees for loans from Freddie and Fannie will face some changes called “loan level price adjustments.” These will tweak interest rates for many home buyers (remember, not those backed by government funds). 

[21:31] Is This a Subsidy?

To get to the point, it’s not exactly a subsidy. It’s not really a Robin Hood situation where you’re taking from the rich and giving to the poor. It’s really just minimizing the cost difference in the spectrum. But, as a business, this really just doesn’t make any sense because it doesn’t even the playing field the way it should. But don’t be too concerned about this, because if you’re getting ready to buy a home, this could change by the time you are ready. 

Resources:

How the US Is Subsidizing High Risk Home Buyers at the Cost of Those With Good Credit - New York Post

Setting the Record Straight on Mortgage Pricing - FHFA