Biden Admin Orders Low Interest Rate Mortgages For Low Credit Borrowers Starting Today

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Why having good credit could cost you more on a home mortgage

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The new rule will hike mortgage rates for home buyers with higher credit scores in an effort to subsidize mortgage rates for those with riskier credit scores.

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The rule changes are part of the Federal Housing Finance Agency's (FHFA) efforts to provide "equitable and sustainable access to homeownership" and to strengthen capital at Freddie Mac and Fannie Mae. "The [Biden] administration's stated purpose behind making these changes is to help make it easier for borrowers who have historically been disadvantaged and have had a hard time accessing credit," Realtor.com chief economist Danielle Hale told ABC News.

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According to Urban Institute, Fannie Mae's and Freddie Mac's share of the mortgage market collectively comprised nearly 60% of all new mortgages during the pandemic in 2020.

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According to the FHFA, the new rules will redistribute funds to reduce the interest rate paid by less qualified buyers.

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Is this a good thing? It depends on who you ask. Critics say the new rules penalize people with good credit, using them to subsidize loans of riskier borrowers. "It's another subsidy to try to buy votes," former Home Depot CEO Bob Nardelli told ABC News. The new mortgage fee rules do nothing to address ongoing inventory challenges in the housing market, which is putting upward pressure on home prices. Some housing experts fear the new rules will encourage banks to lend to borrowers who perhaps shouldn't qualify for a mortgage in the first place. "This confusing approach won't work and, more importantly, couldn't come at a worse time for an industry struggling to get back on its feet after these past 12 months," David Stevens, a former commissioner of the Federal Housing Administration during the Obama administration, wrote in a social media post. "To do this at the onset of the spring market is almost offensive to the market, consumers and lenders.“

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Even with the changes, Bankrate.com mortgage analyst Jeff Ostrowski said that overall, mortgage fees continue to favor borrowers with good credit. "You still get a much better deal with a strong credit score," he said.

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