Bass-Ackwardness In Mortgages

Up is down, down is up. Hot is cold, cold is hot. Got it?

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A new rule from the feds is doing exactly this sort of inverse pretzel-twisting of mortgage fees based on homebuyers’ credit scores. If you have good credit and need to buy a home, you’re not going to like it. 😡

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Here are Five Fast Facts about the new federal mortgage fee:

1. 😯 The Change - A new rule will affect all new mortgages from private banks like JP Morgan Chase and Wells Fargo, starting on May 1st. It adds a new fee to homebuyers who have good credit…because they have good credit. No, that’s not a typo.

2. 💰 The Fee - After the new rule is in place, a homebuyer with a score of 740 and a 20% down payment will be rewarded for their years of good decisions and discipline by paying an extra 1% fee on their mortgage. Um, congratulations…?

3. 📈📉 The Scores - Homebuyers with credit scores above 680 – generally considered good credit – will get hit with the new fee. Those who have a substantial down payment will get the biggest increase. On the other hand, homebuyers with credit scores of 679 or lower will see reduced fees and better rates. And yes, the smaller the down payment they have, the better their rate will be. Irony can be pretty ironic sometimes.

4. 🤔 The Rationale - The reason given for this new rule is to enable low-income homebuyers with poor credit a better chance to buy a home. A noble idea, but…seriously?! This is the best they can come up with?

5. 💸 The Paycheck Hit - If you have good credit and take out a loan of $400k with a 6% interest rate after the new rule kicks in on May 1st, your monthly payment will be about $40 higher than it would have been before the rule. There goes the Starbucks fund. 😭

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🔥Bottom line: This new rule does benefit low-income folks and folks with poor credit scores. But, given that the median income of homebuyers is about $102k – about 45% higher than the overall median income of the country – it’s going to hurt far more people than it helps. This rule ignores the risk of low-income/low-credit homebuyers and forces people with good credit to pay for that risk.

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Mortgage company CEOs and other industry insiders are furious about these changes. They're wondering how to explain this rule that turns the historical wisdom for good home buying habits inside out. Many new homeowners are likely to join the fury after May 1st. Their Paychecks will likely just weep quietly in the corner.

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What do you think of this new rule?

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