“Riskier” borrowers with lower credit scores are now eligible for relief on loan origination costs associated with Fannie Mae and Freddie Mac conforming loans. Some people say that by offering a break only to riskier borrowers, people with higher credit scores are paying unfair costs, in part, to offset this relief.
Representatives from the Urban Institute argue the language and mechanics around this issue should be framed carefully. They do a great job of depicting how people with higher credit scores still come out ahead in many ways. Urban Institute suggests additional points should be taken into account, such as PMI – private mortgage insurance.
PMI is a common, monthly fee charged to any purchaser seeking a loan for more than 80% of a purchase price, regardless of their credit score. For example, a purchaser would be charged PMI if they contributed $50,000 cash on a $500,000 purchase: they’d be asking the bank for $450,000, or 90% of the purchase price. PMI is due when someone seeks these larger sums because historical, statistical data show purchasers seeking mortgages greater than 80LTV were more likely to default. So this fee still exists for everyone regardless of credit score.
Other, nominal origination fees have been offset for people with relatively lower credit scores. Data have shown that marginalized groups experience systemic issues that disproportionately affect opportunities for them to build and maintain “excellent” credit. Perhaps this new aid will not only make housing more accessible for all groups but serve as a small step in the direction of rebalancing access to wealth.