Fox News: Biden Raises Costs for Homebuyers With Good Credit to Help Risky Borrowers. So should you open up a new credit card, rack up the charges, and never pay your bills on time again to tank your credit score? NO. OH MY GOD. NO. Borrowing money to buy a home is is a pretty complex financial transaction that is actually pretty common among everyday people. So today we are covering this recent viral headline.

Source: Mortgage News Daily 

What do these LLPA Changes Mean?

Based on the changes in the heat map, these are two important things: 

1. People who have lower credit scores will comparatively pay less in LLPA fees, while people with higher credit scores will pay more comparatively in LLPA fees going forward. 

2. People who put down smaller down payments will comparatively pay less in LLPA fees, while people who put down more up to around 25% will pay more comparatively in LLPA fees going forward. That said, borrowers who are able to put down more than 25% or so will actually see their LLPA fees comparatively go down.

I keep saying the word comparatively because across the board, someone with a lower score will still pay more in LLPA fees, as well as on their mortgage rate over all, than someone with a higher score, but the changes have narrowed the gap between fees paid by folks with lower scores vs. people with higher scores.

Overview & Market Insights

And while I’m typically a big supporter of narrowing the fee gap between the haves and have nots, this change does make me pretty worried for a few reasons. 

1. While I understand the hope behind this change was to make homebuying more accessible to lower and middle income borrowers, Credit score is not indicative of income.  Though there often is a correlation, people with lower credit scores are not always people who have less money, and on the flip side, people with higher credit scores are not always people with more money. Credit scores are a determinant of credit-worthiness, aka how likely you are to pay back debt. And certainly, do not get me wrong, they are not perfect, it is a flawed system, candidly it’s pretty dumb, but it’s kind of the only one we have right now to get a pulse on whether or not someone has been known to pay back money they owe. And for me, punishing people who have worked hard to have high credit scores, even if just relatively, doesn’t seem fair, or frankly that smart, because onto my second point

2. Regardless of what your credit score is, this new LLPA chart incentivizes people to put down as little as humanly possible on their home, if they can’t afford to put down 30 or more percent. In particular it specifically penalizes people who put down around 20% which historically has been the gold standard of what you “should” be putting down on a home. This means borrowers would be taking on significantly more leverage, and at today’s interest rates, that could mean exceptionally high monthly fees, and taking on a large amount of debt that compounds rather quickly. 

3. And three - this change was meant to make housing more affordable, but spoofing demand for homes at the lower end of the market, among less reputable borrowers, could drive those prices up more in the short term. And even worse, if those high risk borrowers were to default on their loans, the neighborhoods that they choose to buy in could see property values fall due to irresponsible lending. 

This is all to say, personally, I think there are better ways to make home buying more affordable and accessible to lower and middle income families that don’t necessarily need to penalize highly-creditworthy borrowers.

In the pursuit of making housing more equitable, we may actually be creating a less equitable policy. Those are my two cents, take it or leave it, but I am curious about your thoughts on these new changes. Let me know what you think in the comments, as always thank you for watching, and make sure to like and subscribe for more money and finance content! See ya later besties! 

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