“Socialism for Homeowners”
A new rule from the Biden administration will make it harder for people with good credit to buy homes. The rule goes into effect on May 1. People with good credit will be forced to pay more each month to subsidize the cost of mortgages for higher-risk borrowers.
Experts are concerned about the impact this will have on the economy and on homebuyers. Real estate expert Mitch Roschelle called the rule “madness” and “bizarro world.” He explained that the Federal Housing Administration (FHA) charges a fee called personal mortgage insurance (PMI). The fee is supposed to level the playing field from a risk perspective. Lower credit scores and riskier loans were penalized. However, the new rule does the opposite.1
Under the new rule, borrowers with a credit score of about 680 will pay around $40 more per month on a $400,000 mortgage. This money will help subsidize mortgage-seekers with lower credit ratings and less money for a down payment. They would also qualify for better mortgage rates. These rules will apply to anyone borrowing money that’s insured by the FHA, not just first-time homebuyers.
The Federal Housing Finance Agency claims that the new rules are designed to help purchasers who are limited by income or wealth. Many experts disagree. Mark Tepper is the CEO of Strategic Wealth Partners. He called the measure “socialism for homeowners.” Tepper compared it to the student loan issue. People who never went to college are subsidizing student loan debt. The Biden administration is rewarding bad financial decisions.2
“In the short term, this may increase homeownership among the targeted group, but I’m afraid it could decrease homeownership among the middle class,” said Jerry Howard, CEO of the National Association of Home Builders. “I’m not sure that we’re not robbing Peter to pay Paul here.”3
Larry Kudlow is the former National Economic Council director. He said Fannie Mae and Freddie Mac have never “penalized” people who don’t need government programs to help them own homes. Kudlow called the Biden administration’s new rule a “middle-class tax hike.”
“We learned the hard way [in 2008] that if you can’t afford a home, just getting a subsidy one time to get a mortgage, you won’t be able to carry it,” said Kudlow.4
Effect on the Housing Market
Experts believe that the new rules will slow down the real estate market further. The market is already slumping, and this rule will make it worse. Home sales have dropped from 6 million to 4.4 million annually. The supply of homes is alarmingly low. And prices have increased by $100,000 since February 2020, making homes less affordable.5
The new policy may make it harder for people with good credit to buy homes. This means fewer homes being bought. As a result, fewer houses may be built. The housing shortage may become even worse.
Like their previous legislation, the Biden administration seems intent on prioritizing social justice initiatives over sound economic policies. Real estate, commercial and private, is losing its standing as a secure store of wealth. People concerned about their retirement may want to investigate protecting their portfolio with a Gold IRA. Contact us today at 800-462-0071 to learn more.
