On Thursday’s broadcast of the Fox News Channel’s “America Reports,” David Stevens, who served as Federal Housing Association Commissioner during the Obama administration, stated that the Biden administration’s mortgage plan is an inversion of how Freddie Mac and Fannie Mae have operated for “political purposes” that incentivizes bad credit.
Stevens said, “Freddie Mac and Fannie Mae…have always risk-based priced their loans. So, in other words, people with better credit scores and bigger down payments get lower rates than people with really low credit scores and very low down payments. And that risk-based pricing has been part of the discipline of Fannie Mae and Freddie Mac since their beginning. Well, for the first time ever, the director, in an effort to, I think, bring more first-time homebuyers, particularly minority homebuyers into the GSE’s lending programs, made a shift where she lowered the fees being charged to borrowers with low down payments and low credit scores, and the way she compensated — or they compensated for that loss of income, that capital cost that they’re going to incur, is they’re actually raising fees on better credit-worthy borrowers who are putting down much larger down payments.”
Co-host Sandra Smith then said, “I really appreciate you sort of giving us that possible rationale behind what is, as you just said, an unprecedented move in this country. We just have historically not seen this before. You’ve always been incentivized to have better credit and pay your bills on time, because you will be rewarded with lower costs and lower fees to get into a home. David, obviously the peril in this is that you’re incentivizing bad credit scores to get lower costs. So, there’s only so long this could last. You won’t be able to pay for the risky homebuyers if people are incentivized to have lower credit.”
Stevens responded, “Yeah, I’ve literally just got an email from an executive with a mortgage lending company, he goes, so I guess we have to teach borrowers to worsen their credit before they apply for a mortgage in order to get the better price. I mean, that’s a bit of an extreme, but yes, I totally recognize and appreciate the effort to bring more people into home ownership who have traditionally not had that opportunity. But using Fannie Mae and Freddie Mac for these sort of political purposes may not be the best thing to do, and frankly, I think it violates the entire discipline that these two companies have operated under. And it’s going to end up costing some borrowers who are putting 15, 20% down payments, who have credit scores in the 700s and above more for their mortgage so they can help pay for those who are getting the discount, and that’s the part that I think needs to be looked at closely.”
Follow Ian Hanchett on Twitter @IanHanchett
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