When did being creditworthy become a federal crime?
Team Biden will intentionally punish homebuyers with good credit scores to subsidize people with shaky histories of paying their debts. But the latest salvation scheme ignores the sordid history of federal policymakers ravaging homeowners they promised to rescue.
Starting May 1, The Post exposed last week, a Biden administration decree will require adjusting mortgage calculations to penalize homebuyers with a FICO credit score of 680 and above — almost two-thirds of the population. This levy will be used to reduce costs for people with low credit scores — i.e., risky borrowers more likely to default on mortgages.
Jerry Howard, CEO of the National Association of Home Builders, warns that President Joe Biden’s policy “could decrease homeownership among the middle class.” Former Federal Housing Finance Agency director Mark Calabria emailed me that moving away from “risk-based credit . . . will ultimately harm both borrowers and financial stability.”
Federal regulations require that all charges and credits to buyers and sellers be explicitly listed in mortgage settlement statements. The new federally mandated penalty for creditworthy borrowers should be explicitly listed on loan documents as a Social-Justice Surtax. That surtax could amount to $60 or more per month — equivalent to more than $20,000 over a 30-year mortgage.
What will Biden’s wizards uncork next? Maybe a special home-buying discount for people who fizzle at least $12 a day at Starbucks? Maybe a new mortgage subsidy for boneheads who spend half their income on a spiffy electric car?
Actually, the new compulsory cross-subsidy is part of the Biden crusade to close the homeownership gap between black and white families. “The average credit score in white communities was 727 in 2021, compared with 667 in Hispanic communities and 627 in Black communities,” Newsweek noted.
Federal Housing Finance Agency Director Sandra Thompson testified to Congress last year that the racial homeownership gap “is higher today than when the Fair Housing Act [of 1968] was passed.” But Thompson neglected to concede that much of the blame rests on politicians and bureaucrats who caused the 2008 housing crash.
The Clinton administration, with Housing and Urban Development Secretary Andrew Cuomo in the lead, blamed racial bias for the homeownership gap and pressured companies to issue far more subprime mortgages. President George W. Bush jumped on the bandwagon, pushing through Congress a bill giving federal handouts for down payments to first-time homebuyers. Millions of families received mortgages they could not afford.
“Affordable housing turned out to be the path to perdition for the U.S. mortgage market,” Judge Janice Rogers Brown lamented in a 2017 federal appeals court decision.Her opinion aptly described federal intervention as “wrecking-ball benevolence,” quoting a phrase from a 2004 Barron’s op-ed I wrote.
Giving people mortgages they can’t afford can ruin their lives. Thanks to the housing crash, the median net worth for Hispanic households declined by 66% between 2005 and 2009 and the median net worth of black households declined by 53%.
“The implosion of the subprime lending market has left a scar on the finances of black Americans — one that not only has wiped out a generation of economic progress but could leave them at a financial disadvantage for decades,” The Washington Post observed in 2012.
But Biden policymakers learned nothing from the housing crash. Instead, the administration blames the homeownership gap in part on unjust denial of mortgages to black applicants.
In recent years, however, black mortgage holders have been almost 50% more likely to default than white borrowers, per the American Enterprise Institute. In 2021, the mortgages for black homeowners were more than twice as likely to be in forbearance than white homeowners.
The same trend has prevailed for decades. A 1995 Federal Reserve Board study examined more than 200,000 mortgage loans and found that “blacks defaulted about twice as often as white borrowers.”
The new Biden penalty on creditworthy home buyers is on par with his national moratorium on evicting deadbeat renters, food-stamp rules discouraging people from getting jobs and perpetually absolving student borrowers from paying a cent on their federal loans. These policies are not spurred by generosity. They are steps toward politicians and their appointees seizing boundless sway to determine who gets what in American life.
Reparations are fashionable these days, such as the San Francisco advisory committee proposal to give $5 million to every black adult. A far more justified reparations scheme would be to force politicians and federal housing policymakers to compensate homeowners they bushwhacked over the decades. But that type of justice has no chance inside the Beltway. In lieu of reparations, how about if the feds stop screwing up mortgage markets?
James Bovard is the author of 10 books and a member of the USA Today Board of Contributors.