Experts for top mortgage lenders debunk biggest myth about Biden's rule punishing homebuyers with good credit

Borrowers with higher credit scores are not paying more for their mortgage, according to loanDepot broker John Gerardi

Experts at two of the nation's top lenders claim homebuyers may not fully understand a new Biden administration rule that redistributes high-risk loan costs to homeowners with good credit. 

"I think there's a little bit of maybe misinterpretation," United Wholesale Mortgage (UWM) COO Melinda Wilner told Fox News Digital. 

"A lot of people think that higher credit scores are now paying more for their mortgages than lower credit scores and that's actually not the case. It's just some of the changes were more impactful to certain pockets of credit scores and loan to value."


The new rules enacted by the Federal Housing Finance Agency (FHFA) on May 1 aim to help lower-income borrowers afford their monthly mortgage payment. Under it, experts believe borrowers with a credit score of 679 or lower and less money for a down payment will qualify for better mortgage rates than they otherwise would have, while those with higher ratings ranging from 680 to above 780 will pay increased fees.

At the start of the month, research from The Urban Institute – a Washington D.C.-based think tank – showed borrowers with the highest credit scores would either see a fee reduction or no change at all. 

"FHFA has said consistently that those with higher credit scores and larger down payments pay lower fees. Risk-based pricing was in effect in the past, and it remains in place today. Updates made to the pricing framework are catered to an individual borrower’s financial standing—it is not a "one size fits all" policy. FHFA has a duty to ensure Fannie Mae and Freddie Mac guard against evolving market risks, so it spent over a year working to make the needed updates to the pricing framework that hadn't been comprehensively reviewed in many years," a FHFA spokesperson told Fox News Digital.

LoanDepot broker John Gerardi told Fox News Digital that people in the upper-credit score range will still get the benefit of having a better payment option than someone with a lesser credit score.

"They’re just maybe going to lose out on a very small discount that they might have had six to eight months ago with the old pricing grid," he explained. 

According to Gerardi, lenders have been complying with the new adjustments way before they went into effect. 

"These adjustments have been in play for a long time, and [the FHFA] go back to the drawing board, analyze which loans are doing better than other loans and make their changes," the New York-based loan consultant explained. "So right now we have the newest of their wave of changes, which most lenders were made aware of in January and already had started to build it into their pricing model."

Both Gerardi and Wilner emphasized that the rate changes are normal and part of the FHFA's typical process for evaluating prices.

"Rates change all the time. The adjustments change often as well. So we're no stranger to these changes," Wilner said. 


However, she also pointed out that concerns from buyers have become "a little louder" since the changes began circulating in the media and challenged the idea that good creditors were paying the difference in new rates for poor-credit buyers. 

"It's just different adjustments," Wilner said.

"It's nothing that you can really tangibly feel when a borrower comes to a lender and says, 'hey, you know, what's my rate going to be, what's my payment,' we give the rate with everything built into it. It's not normally, 'hey, yesterday it was this, and today it's this' kind of thing," she added. "I think the attention to it kind of makes people feel that way, but they're not seeing tremendous amounts of difference between it."

For sales sign outside home

A recent change to the Federal Housing Finance Agency (FHFA) pricing adjustments has many buyers concerned about mortgage payments.  (AP Photo/Rich Pedroncelli / AP Images)

In an attempt to alleviate fears, FHFA Director Sandra Thompson said in a statement last month that the new fees will not "represent pure decreases for high-risk borrowers or pure increases for low-risk borrowers" and will instead be targeted at "products such as second homes and cash-out refinances."

"Many borrowers with high credit scores or large down payments will see their fees decrease or remain flat," Thompson explained. 

The motivation behind it, according to Gerardi, may be to get first-time homebuyers into the market. 

"We took some hits during the pandemic and now we want to make our new changes to kind of inspire first-time homebuyers, give them a little bit of benefit, even if they don't have the best credit," he said. "But in order to give to one side of the spectrum, they have to take from another."

Gerardi added that the pricing model for those purchasing second homes has also changed with the new FHFA rules. In the past second homes were priced like primary residences, but are now being priced "out closer to what an investment property would look like."

"There is a lot of risk to financing a second home investment property, especially with these inflated prices," he said. "So that's definitely a risk that shows you the intention behind it is where do we [FHFA] feel like the chips are going to fall in today's day and age? Who is going to really take that homeownership and basically hold on to it with all they've got? The first-time buyer."

"A lot of people think that higher credit scores are now paying more for their mortgages than lower credit scores, and that's actually not the case."

- Melinda Wilner, United Wholesale Mortgage COO

Given the tumultuous housing market with inventory shortages, high rates, and skyrocketing costs, the risk associated with second homes and investment properties has come under a new lens.

Market volatility has some experts like Gerardi concerned about these changes and the fear surrounding them could have a negative impact on an already weak housing market. 

"So with these changes that are coming up, besides just discouraging people from coming out and looking to buy homes, they're already feeling like that they're behind the eight ball being a seller's market," he explained. "But now you might discourage sellers from wanting to list their homes because they're now concerned, well, what am I going to be able to afford on my next purchase?"

"The last thing that we want to do is discourage sellers from even listing their home because of the inventory issue that we're dealing with," he added. 

Wilner, however, said she does not believe the changes will "halt" the housing market as seasonality and numerous other factors come into play when buying a home.

"I don't see any of these LLPA changes as catastrophic or anything too significant that will impact a lot of people from buying homes," she said. "The bigger impact is really what are rates holistically going to do. These adjustments are not as significant as if rates came down into the fives and into the fours and into the threes again." 


"The hope is that there is some impact, especially on the lower credit and where there were decreases and maybe there is a group of people that now can buy the home based on changes that were made there," Wilner added. 

As fears still remain for many homebuyers, the true impact of these rates is yet to be seen. Gerardi noted these changes could be reevaluated, and new adjustments could come within the year if the desired outcome is not met.

Wilner and Gerardi both stressed the importance of maintaining a high credit score when buying a home.

FOX Business' Michael Lee and Kristen Altus contributed to this report.