A new Federal Housing Finance Agency (FHA) policy that changes the fee structure mortgage borrowers pay based on their credit score is a "middle-class tax hike that will unfairly cost American families millions upon millions of dollars," according to a letter by State Auditor Andrew Sorrell and 33 other state financial officers.

According to Yahoo News, starting yesterday, under a new FHA rule, home buyers with higher credit scores may end up paying more in mortgage fees, while those with lower scores could pay less. The Loan-Level Pricing Adjustment (LLPA) is a fee that is based on the risk of the borrower using a conventional mortgage and not an FHA mortgage. It's based on a borrower's loan-to-value ratio, credit score, occupancy type, and number of units in a property.

Sorrell and 33 other state financial officers said in a letter to President Joe Biden and FHA director Sandra Thompson the policy will have the "net effect of making it significantly more expensive for people with good credit to buy houses." 

"In other words, the policy will take money away from the people who played by the rules and did things right – including millions of hardworking, middle-class Americans who built a good credit score and saved enough to make a strong downpayment," the authors said. "Incredibly, those who make down payments of 20 percent or more on their homes will pay the highest fees – one of the most backward incentives imaginable. For decades, Americans have been told that they will be rewarded for saving their money and building a good credit score. This policy turns that time-tested principle upside down." 

The new "junk fees" will be used to "subsidize higher-risk borrowers by handing out better mortgage rates to people with lower credit ratings who have saved less for a down payment," according to the letter.

 "We all want to increase homeownership across our great country – that's a central component of the American Dream. And we recognize that there's a gap in access to credit and that low credit scores are a significant barrier to buying a home. Moreover, federal programs exist to address affordable housing assistance and the new policy does nothing to address the shortage of housing inventory," the authors wrote. "But the right way to solve that problem is not to use the power of the federal government to penalize hardworking, middle-class American families by confiscating their money and using it as a handout. The right way is to implement policies which will reduce inflation, cut energy costs, and lower interest rates. Doing so will enable more families to save and improve their credit scores. Increased financial literacy efforts must also be part of the solution."

To connect with the author of this story or to comment, email caleb.taylor@1819News.com.

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