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April 18, 2023 | New Home Buyers Penalized for High Credit Scores

Martin Armstrong

Martin Arthur Armstrong is current chairman and founder of Armstrong Economics. He is best known for his economic predictions based on the Economic Confidence Model, which he developed.

Fannie Mae and Freddie Mac are making some changes to Loan Level Price Adjustments (LLPAs) that will likely hurt those with good credit applying for conventional loans in the US. To ensure “fairness,” the agencies are helping “underserved” first-time home buyers by reducing costs for those with lower credit scores and less money for down payments. Borrowers with a credit score under 680 will be rewarded, while those who spent years maintaining a high level of creditworthiness will see higher rates.

Spent years saving for a down payment? Expect to pay more as they implement fees for borrowers who can put 15% to 20%+ down. Previously, lenders would favor higher down payments in their risk adjustments. So even if someone chose to put down over 20% to avoid PMI costs, they would now be penalized due to these asinine FHFA rules. So those with good pay, credit, and savings will be penalized while low-income earners will receive countless benefits.

In a blog post the other day, I mentioned how banks are not profiting on mortgages as they once did. Fannie and Freddie are looking to track down extra fees as the middle class is continually squeezed. They want the people to pay for mortgage insurance. Perhaps lenders want those with lower credit scores, who are less likely to meet their obligations as a first-time home buyer, to take out loans since they’re more likely to default. This is like giving A test scores to students who only studied enough to earn a C. They are making it difficult for financially responsible people to enter the housing market.

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April 18th, 2023

Posted In: Armstrong Economics

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