Biden is making you subsidize mortgages for deadbeats
April 23, 2023
Homebuyers today face a number of challenges and obstacles. Aside from all the pain normally associated with the process of finding a house and assembling the paperwork to apply for a mortgage, they are also facing an environment in which interest rates are more than twice what they were just two years ago.
The difference between the low 2.68% rate of December 2020 and last week’s 6.94% rate means that, despite the cooling of the national housing market, homebuyers are getting a lot less for their money. Consider that a $500,000 mortgage from late 2020 would cost $2,023 per month for principal and interest, whereas currently, it would cost $3,306, an increase of more than 63% to borrow the exact same amount. To think of it another way, a current homebuyer with a $2,000 monthly budget can afford to borrow only $288,000, more than 40% less than he could borrow just 2 1/2 years ago.
AMERICA NEEDS THE FLORIDA MODEL
And yes, housing has pulled back in most of the hottest markets. But even enormous home price declines of 20% or 30% do not make up for such a steep increase in the cost of borrowing.
In short, unless you’re buying with cash, something few normal people can actually afford to do, you are not enjoying any of the benefits of the downturn in housing prices.
Naturally, President Joe Biden‘s Federal Housing Finance Agency, the entity that regulates Fannie Mae and Freddie Mac, has found a way to make things even worse, specifically for homebuyers who have paid their bills responsibly and accumulated good credit histories.
It’s all in the name of equity, you see.
Starting May 1, if you have a credit score north of 680, Biden wants to charge you an extra fee that comes out to about $40 a month on a $400,000 mortgage. That money will go to subsidize mortgages for people with smaller down payments and lower credit scores — that is to say, people who don’t pay their bills on time or who borrow money and outright fail to pay it back.
Credit scores are the only objective, colorblind numerical measure of personal financial responsibility. The methodology with which they are used has even been made fairer recently through the inclusion of rents and other personal bills. So no, this is not a program targeted at helping the poor or nonwhite buyers. In reality, this is a program targeted at helping deadbeats.
It is outrageous, just in principle, that responsible borrowers should be forced to subsidize the irresponsible if they want a shot at the more than 60% of U.S. home loans that the FHFA oversees. It turns on its head Aesop’s famous fable of the ant and the grasshopper.
But this idea is also terrible from a practical perspective. First of all, $40 a month might not seem like a lot, but it’s $14,400 over the lifetime of a mortgage, and at today’s interest rates, it effectively reduces what responsible homebuyers can afford by $6,000. Moreover, a subsidy for borrowers with poor credit and low down payments is a recipe for more foreclosures. This precise thing happened within recent memory during the last big recession — recall that it helped bring about the financial crisis of 2008. It is therefore incredible that Biden, who was still a senator and running for office at that time, hasn’t learned any lessons about the dangers of subsidizing mortgages for those demonstrably least likely to repay them.
The fact that he is doing this now at the expense of responsible borrowers, all in the name of “equity,” just makes it that much more outrageous.