On Monday’s broadcast of CNBC’s “Squawk Box,” David Stevens, who served as Federal Housing Association Commissioner during the Obama administration, stated that the mortgage plan proposed by the Biden administration will be ineffective at helping people with lower credit scores, and will only raise costs for other borrowers.
Stevens stated, “Well, look, with all the best intentions, the director of the regulator for Fannie Mae and Freddie Mac — the FHFA — has been pushing both Fannie and Freddie to do better in providing affordable mortgage products for first-time homebuyers, particularly with lower credit scores and lower down payments. Often, that’s filled with minority homebuyers, African Americans and Hispanics, where the GSEs have just performed much worse than the FHA program and some other programs available. So, in an effort to get there, they’ve — for the first time ever — really convoluted the pricing structure where they are going to significantly lower what’s called long-level price adjusters, individual fees for those low credit quality borrowers, and it’s going to be cross-subsidized, which is just a way of paying for this, with borrowers with higher credit scores in the 700s with larger down payments. So, their fees are going up while other fees are going down.”
He continued, “The unfortunate reality, Becky, is that it really isn’t going to be that effective. FHA is still a better rate for those low credit score borrowers, so we’re going through this set of steps, and all it’s going to end up doing is raising costs to a bunch of borrowers who are sort of traditional GSE borrowers. But the FHA will still be a cheaper rate for a borrower with a credit score below 700 and a very low down payment. So, it really accomplishes little other than really disrupting a tradition around risk-based pricing that Fannie and Freddie have been committed to ever since their inception.”
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