Senate GOP slams ‘perverse’ Biden rule forcing people with good credit to subsidize high-risk mortgages

Republicans could be looking to mount a challenge to the rule

Senate Republicans on Wednesday accused the Biden administration's Federal Housing Finance Agency (FHFA) of playing politics with the U.S. housing market by forcing people with good credit to subsidize high-risk mortgages, and warned that doing so would put individual homebuyers and the entire market in danger.

Sen. Roger Marshall, R-Kan., and a dozen other GOP senators issued this warning in a letter to FHFA Director Sandra Thompson that also demanded the details of how this policy decision was made, a possible sign that the legality of the move could be challenged.

"This announcement, scheduled to take effect May 1, 2023, will invert the common-sense risk financing structure at the GSEs in an effort to decrease mortgage rates for riskier individuals with low credit scores and forcibly raise rates for those with higher scores," they wrote, referring to the government-sponsored entities and mortgage giants Fannie Mae and Freddie Mac. "This shortsighted and counterproductive policy demonstrates a profound misunderstanding of the necessity of accurately tailoring housing finance products to credit risk and establishes a perverse incentive that punishes hardworking Americans for their fiscal prudence."

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President Biden's administration will soon implement a rule aimed at making people with good credit subsidize the mortgage payments of high-risk borrowers. Photographer: Chris Kleponis/CNP/Bloomberg via Getty Images

"The housing market should not be exploited as a means to pander to targeted demographics that you have chosen, nor an instrument to secure political favoritism," they added.

Experts have said under the rule, people with credit scores in the neighborhood of 680 might pay another $40 more per month on a $400,000 to subsidize higher-risk mortgages. Marshall told Fox News Digital that it makes no sense to hit people harder who have been responsible.

"Just when you thought Joe Biden couldn’t be more out of touch with the hardships Americans are facing due to his failed economic agenda, skyrocketing interest rates, and record high Bidenflation, he doubled down, now penalizing responsible Americans with good credit scores," Marshall said. "This is illogical. The Biden administration must answer for why they are punishing Americans who have diligently met their financial obligations and earned higher credit scores."

It’s a policy change that has drawn criticism from Democrats as well. President Obama’s former Federal Housing Administration commissioner, David Stevens, told Fox News, "We can do better programs to help more minorities get into homeownership. This is not the way to do it."

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Sen. Roger Marshall, R-Kan., and other GOP senators are warning that Biden's plan could create confusion and turmoil in the housing market. Photographer: Al Drago/Bloomberg via Getty Images

The letter from Senate Republicans said FHFA has tried before to "social-engineer the U.S. housing market" by tweaking the rules that the GSEs must follow. They warned this latest attempt seems aimed at making high-risk borrowers more comfortable with homes that are out of their price range.

"The Equitable Housing Finance Plans developed by the GSEs under the direction of FHFA sought to create a class of housing subsidies based on the color of one’s skin, despite the clear unconstitutionality of this concept," they wrote. "Now, FHFA seems intent to go further and enshrine a system that willfully ignores the realities of creditworthiness in an effort to push Americans into homes they may be ill-suited to afford."

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Biden's new mortgage plan is set to take effect on May 1. (Photo by Anna Moneymaker/Getty Images) (Anna Moneymaker/Getty Images)

Senators added that the rule "brazenly contradicts" current financial principles that say individual financial responsibility should be rewarded, and that the cost of financial products should be tailored to each person as much as possible.

The senators asked the FHFA director whether any cost-benefit analysis has been done on how the rule change might affect the housing market, and whether it held a formal notice-and-comment period about the rule to allow for public input. That’s a sign that Republicans could be looking to mount a challenge to the rule – the Administrative Procedures Act requires a period of public comment before rules are finalized.