sharon sanders
Editor-in-Chief & President
Biden Raises Costs for Homebuyers With Good Credit to Help Risky Borrowers
BY KATHERINE FUNG ON 4/21/23 AT 3:48 PM EDT
Homebuyers with good credit scores will soon be facing higher mortgage fees as the Biden administration seeks to close the racial homeownership gap and get more first-time and low-income buyers through the door.
Starting in May, a new federal rule will upend the current structure of the Loan-Level Price Adjustment (LLPA) matrix. Homebuyers with a good credit score could see their monthly mortgage payment rise by over $60 a month, while riskier borrowers will get more favorable mortgage terms because their fees were reduced. It's a move the Federal Housing Finance Agency (FHFA) hopes will address housing affordability challenges in the U.S., but it's come under scrutiny for being unfair and potentially ineffective.
"In the short term, this may increase homeownership among the targeted group, but I'm afraid it could decrease homeownership among the middle class," Jerry Howard, CEO of the National Association of Home Builders, told Newsweek. "I'm not sure that we're not robbing Peter to pay Paul here."
more....
https://www.newsweek.com/biden-raises-costs-homebuyers-good-credit-help-risky-borrowers-1795700
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If the US government is really serious about helping the disadvantaged then bring back the FHA mortgage that is assumable without qualifying.
That is a program in which a borrower only has to come up with cash to assume the mortgage. There is no credit score or income requirements.
Here is an example:
1) A house is for sale for $300,000. It is in a good school district and it is convenient to shopping and the city center.
2) The sellers have owned the house 5 years and the original amount of the mortgage was $240,000 at 4.0% amortized over 30 years. The monthly mortgage payment with interest and principle is $1,146.00 per month. Of course property taxes and homeowners insurance will also be added. Let's say $600 additional for those items for a potential total monthly payment of $1,746.
3) The remaining balance on the loan is $217,074. The difference between the sales price of $300,000 minus the mortgage balance of $217,074 = $82,926. That is a lot of money - but guess what? In the old days the sellers often held a 2nd mortgage so the buyer did not have to come up with that much cash. In this example it is possible that a seller might hold a 2nd mortgage of $40,000 at maybe a 6% interest rate amortized for 30 years but due in 5 or 10 years. This 2nd mortgage payment would be $240 per month. If the seller did this the total monthly payment would be (from the example above) for the original mortgage, taxes, insurance ($1,746) + the seller held 2nd mortgage ($240) = $1,986.
Or, the buyers could use their own cash plus gifts and/or loans from relatives, friends, others.
Again - no income or credit checks.
Any other program is lacking because the barrier to entry into home ownership is income and credit - not just credit.
BY KATHERINE FUNG ON 4/21/23 AT 3:48 PM EDT
Homebuyers with good credit scores will soon be facing higher mortgage fees as the Biden administration seeks to close the racial homeownership gap and get more first-time and low-income buyers through the door.
Starting in May, a new federal rule will upend the current structure of the Loan-Level Price Adjustment (LLPA) matrix. Homebuyers with a good credit score could see their monthly mortgage payment rise by over $60 a month, while riskier borrowers will get more favorable mortgage terms because their fees were reduced. It's a move the Federal Housing Finance Agency (FHFA) hopes will address housing affordability challenges in the U.S., but it's come under scrutiny for being unfair and potentially ineffective.
"In the short term, this may increase homeownership among the targeted group, but I'm afraid it could decrease homeownership among the middle class," Jerry Howard, CEO of the National Association of Home Builders, told Newsweek. "I'm not sure that we're not robbing Peter to pay Paul here."
more....
https://www.newsweek.com/biden-raises-costs-homebuyers-good-credit-help-risky-borrowers-1795700
--------------------------------------------------------------------------------------------
If the US government is really serious about helping the disadvantaged then bring back the FHA mortgage that is assumable without qualifying.
That is a program in which a borrower only has to come up with cash to assume the mortgage. There is no credit score or income requirements.
Here is an example:
1) A house is for sale for $300,000. It is in a good school district and it is convenient to shopping and the city center.
2) The sellers have owned the house 5 years and the original amount of the mortgage was $240,000 at 4.0% amortized over 30 years. The monthly mortgage payment with interest and principle is $1,146.00 per month. Of course property taxes and homeowners insurance will also be added. Let's say $600 additional for those items for a potential total monthly payment of $1,746.
3) The remaining balance on the loan is $217,074. The difference between the sales price of $300,000 minus the mortgage balance of $217,074 = $82,926. That is a lot of money - but guess what? In the old days the sellers often held a 2nd mortgage so the buyer did not have to come up with that much cash. In this example it is possible that a seller might hold a 2nd mortgage of $40,000 at maybe a 6% interest rate amortized for 30 years but due in 5 or 10 years. This 2nd mortgage payment would be $240 per month. If the seller did this the total monthly payment would be (from the example above) for the original mortgage, taxes, insurance ($1,746) + the seller held 2nd mortgage ($240) = $1,986.
Or, the buyers could use their own cash plus gifts and/or loans from relatives, friends, others.
Again - no income or credit checks.
Any other program is lacking because the barrier to entry into home ownership is income and credit - not just credit.
