Is Joe Biden really punishing Homebuyers with high credit scores?
A look behind a new change to how credit scores can impact your mortgages
Okay first thing is first, you have probably heard about this by now.
It may have been on the news, in an article or even on social media (most likely source). Headlines are reading:
“Biden Raises Costs for Homebuyers With Good Credit to Help Risky Borrowers”
“Biden’s mortgage ‘equity’ will screw up the homebuying market”
“Homebuyers With Good Credit Could Pay To Boost Black Homeownership Under Biden Rule”
Now getting past the agendas, its important to understand what all of this is about:
WHAT IS THIS ABOUT?
Back in January 2023 the FHFA (Federal Housing Finance Agency)announced further changes to Fannie Mae’s and Freddie Mac’s (the Enterprises) single-family pricing framework. This was to take place on May 1st 2023, but lenders would be able to start implementing these changes as of April.
The Agencies Director: Sandra L. Thompson said “These changes to upfront fees will strengthen the safety and soundness of the Enterprises by enhancing their ability to improve their capital position over time,”.
The aim was redesigning and recalibrating upfront fee matrices for purchase, rate-term refinance, and cash-out refinance loans.
A.K.A. Changing the loan level price adjustments (LLPA).
HOW DOES THIS WORK???
Let’s get visual. Below you will see the old LLPA chart, as well as the new LLPA chart. This chart is used by lenders to determine how much higher or lower your interest rate on your mortgage is.
We are measuring the % of down payment (x-axis) and your total credit score (y-axis).
Credit: Win The House You Love
Old chart- shows more of a reward for those who had a higher down payment combined with a higher credit score.
New chart- shows more incentive for lower qualified buyers than previously. Which is why people are making it out as punishment for higher credit scores (which it is, but it also isn’t.
Keep in mind this really applies most to conventional loans. Now, if you look closely, there is actually more incentive for someone to have a higher credit score and put less money down. Some Mortgage people can even put you as 3% down and then have you use the remainder toward your principal or something to that nature.
If this strategy is something you want to know more about feel free to reach me at info@dmaonbishop.com.
Why is it good???
It is good in the sense that it opens access to more opportunities for those who have bad credit to get into homeownership, but it does leave people feeling like they are picking up the slack for others who may have pride in how they have built their credit.
Why is it bad???
Because of how this can be interpreted in an article, the click bait headlines, will leave most people that have good credit feeling robbed. Looking at the chart above, there is no reason to view this as “Screw it! My credit doesn’t matter anymore”. That is the furthest thing from the truth.
There are also changes happening to how DTI is measured as well as new credit brackets. I will leave the new Fannie Mae Loan-Level Price Adjustment Matrix Here.
What now?
Now, you should not let this deter you from setting yourself up financially. Build purchase power and increase your position. When it is time to make a move, find professionals who can help you find the best Hacks to maximize your opportunities and investments.
Feel free to contact me with any questions about how this can impact you!
info@damonbishop.com