On Monday, state treasurers and other top finance officials from 27 states called on President Biden to put an end to his “unconscionable” policy of requiring individuals with good credit scores to subsidize mortgage loans for higher-risk borrowers, warning it’ll be a “disaster.”
The policy, outlined by the Federal Housing Agency (FHFA), would require people with good credit scores to pay extra each month for their mortgages, with those payments going towards the loans of higher-risk borrowers in order to help them afford their monthly mortgage payments. The officials warned that this would lead to disaster, and criticized the policy for forcing responsible borrowers to subsidize riskier borrowers. Both Republicans and Democrats, including former Federal Housing Administrator for President Barack Obama, have also ripped the controversial policy, Fox Business reported.
“It is already clear that this new policy will be a disaster,” the officials wrote in a letter led by Pennsylvania Treasurer Stacy Garrity and sent to Biden and FHFA Director Sandra Thompson. “It amounts to a middle-class tax hike that will unfairly cost American families millions upon millions of dollars. And – at a time when the real estate market has already slowed considerably due to high interest rates – it will further depress home sales.
“We urge you to take immediate action to end this unconscionable policy,” they wrote.
The state finance officers criticized the plan for turning the traditional system of home-buying, which rewards people who make sound financial decisions, “upside down.” They argued that the plan is unfair and will discourage people from striving for good credit scores and responsible financial behavior, while rewarding those who are higher-risk borrowers.
“[T] he policy will take money away from the people who played by the rules and did things right – including millions of hardworking, middle-class Americans who built a good credit score and saved enough to make a strong down payment,” they wrote. “Incredibly, those who make down payments of 20 percent or more on their homes will pay the highest fees – one of the most backward incentives imaginable.”
The plan has been criticized for using the extra payments to provide “better mortgage rates to people with lower credit ratings,” effectively rewarding those with riskier credit profiles. Critics have also argued that the policy could enable individuals with unstable credit histories to take on more expensive mortgages, potentially placing them at greater financial risk.
The state officials emphasized that while expanding homeownership is an admirable objective, mandating the subsidization of risky loans is not the appropriate approach to achieve it, Fox Business added.
“[T]he right way to solve that problem is not to use the power of the federal government to penalize hardworking, middle-class American families by confiscating their money and using it as a handout,” they wrote. “The right way is to implement policies which will reduce inflation, cut energy costs and bring lower interest rates.”
The letter was signed by treasurers, auditors, commissioners of revenue and other top officials from Alabama, Alaska, Arizona, Arkansas, Florida, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Nebraska, Nevada, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Texas, Utah, West Virginia, Wisconsin, and Wyoming, the network added.
