Have you heard of the Federal Housing Finance Agency or loan-level pricing?

Well, there is a government agency that just came up with a way to reward bad financial habits and punish people who practice prudent financial and credit management.

The Federal Housing Finance Agency (FHFA) is charged with being the regulator of the Federal Home Loan Bank System and as regulator and conservator of Fannie Mae and Freddie Mac.

In October of 2022, FHFA announced that it would change the loan-level pricing adjustment fee on home buyers when they borrow to buy a home and it’s based on the borrower’s level of risk.

Home buyers with good credit will now be penalized while those with low credit scores will be rewarded.

A borrower with a 740 FICO score and 20% down payment will pay a 1% loan-level pricing adjustment fee, up from .25%; a 400% increase.

A borrower with a 640 FICO score, and a 3% down payment, will pay a 1.75% fee, down from 3.5%; a 50% reduction.

People who were financially responsible will pay more and people who did not exercise prudent credit management will be rewarded.

Oftentimes people with modest incomes have better credit than those with higher incomes. The FICO credit system is not dependent on someone’s income, but on their record of on-time payment of bills and debts.

This new approach by a federal agency is designed to subsidize people with subpar credit at the expense of families with a high credit score.

Agency director, Sandra L. Thompson, said, “This change is…another step to ensure…equitable and sustainable access to homeownership.”

How is this approach to “equity” fair? Does this make sense to you?

You can read more about this here: FHFA Announces Targeted Pricing Changes to Enterprise Pricing Framework | Federal Housing Finance Agency.

To Your Prosperity,