Senator Mitt Romney criticized a new government policy raising the mortgage loan cost for high credit scorers and decreasing the cost for low scorers, which went into effect May 1.
In a statement released by his office, Senator Romney said the new policy punishes “hardworking Americans” for being financially responsible.
The policy, announced by the Federal Housing Finance Agency, brings the cost of loans down for many scorers below 680. Low scorers will see a cost decrease between 0.125%-2%, depending on the loan-to-value ratio.
Reversely, according to Urban Institute, prices will increase for high-score borrowers with an LTV of roughly between 95%-75%.
The move is designed to support “borrowers limited by wealth,” and give them an opportunity to own homes, according to the FHFA.
However, Senator Romney has questioned the political motives behind the policy.
“It makes no sense — other than to appease progressives — to re-work mortgage fee structures that lead borrowers with strong credit scores to subsidize the costs for borrowers with low credit scores,” Senator Romney said.
Senator Romney and other Republicans have petitioned the Government Accountability Office to consider the viability of challenging the policy with congressional action.
Ron Winterton, a mortgage consultant at American Pacific Mortgage, recognizes the frustration many high credit scorers will feel from the new policy.
“If you want to improve and help people get into homes it’s a great idea … but at the expense of those who have saved up money and built good credit scores, there wasn’t any real big communication from FHFA,” Winterton said.
Winterton weighed up Romney’s claim that high credit scorers will subsidize low scorers through a redistribution of costs.
“There has been nothing in their communication that says that’s specifically why they raised one, was to fund the other, they’ve only alluded to that … but that does seem to be what the evidence suggests,” Winterton said.
While the new policy may be a burden on older generations with built-up credit history, it could appear slanted to benefit college students. Individuals ages 18-25 have the lowest credit score of any age group, often because they have not had the time to build up a credit history.
According to a FICO poll, 29% of Generation Z said they either do not have a credit score or do not know if they have one.
John Carmen, an electrical engineering major at BYU, has mixed feelings toward the policy, although he recognizes the benefit it will bring to his age demographic.
“I think it will be good for people like us, but I also think it has to be based on more factors, because just because you have a good credit score doesn’t mean you have a lot of money,” Carmen said.
Carmen is worried about the potential upsets the policy could cause.
“For people with high credit scores but low income it could cause problems with their monthly budgeting,” Carmen said
A FHFA spokesperson responded to some of the accusations that the new policy is an irresponsible meddling of the credit score incentive structure.
“Updates made to the pricing framework are catered to an individual borrower’s financial standing — it is not a ‘one size fits all’ policy,” the spokesperson said. “FHFA has said consistently that those with higher credit scores and larger down payments pay lower fees.”
In other words, the cost gap between the high and low credit scorers has been reduced, but not inverted.
The full cost changes can be found here.
