Fannie Mae New Rule: The Better Your Credit Score the Higher Your Mortgage Rate | Hacker News Reader

Fannie Mae New Rule: The Better Your Credit Score the Higher Your Mortgage Rate

singlefamily.fanniemae.com

27 pointskolanos27 comments

The current headline, “The Better Your Credit Score the Higher Your Mortgage Rate” is not true. The LLPA (Loan Level Price Adjustment, the amount Fannie Mae charges essentially) decreases monotonically with increasing credit score. So higher credit score borrowers will still pay less than lower credit score borrowers.

From [1]: "'Overall, lower-credit buyers will still pay more in LLPA fees than high-credit buyers – but the latest changes will close the gap,' notes the Post."

What they have done is significantly lowered the spread between high- and low-credit score borrower, by increasing the fee charged to the former and decreasing the fee charged to the latter.

[1] https://reason.com/2023/04/21/borrowers-with-high-credit-sco...

"Under the new matrix, borrowers with high credit scores will face higher mortgage fees __than before__ and those with lower credit scores will face lower fees."

The submission title should be "Fannie Mae New Rule: The Better Your Credit Score the Higher __the increase in__ Your Mortgage Rate"

HN limits submission titles. I couldn't fit "Increase " into the end of the title. But if @dang wants to make the title more clear then I'd welcome that.

So now that the affordability range for mid-and-high-tier earners is depressed, they’ll be encouraged to buy cheaper houses, thus increasing demand for the lower-end market and making it even more difficult for those with poor credit to buy a house.

So it’s really an issue of imprecise title, but the issue is still highly immoral and likely illegal based on the taking clause and the highly discriminatory and unequal nature, regardless.

The title should have been more like about how the fees, i.e., marginal rates, for higher risk borrowers is being charged to lower risk borrowers. No moral or ethical person could support this, regardless of benefit of penalty. It is indefensible, short of making it voluntary so all the virtue signalers can choose to put their money where their mouth and self-righteousness it. It is still a system to punish good and reward bad.

> but the issue is still highly immoral

With reference to what specific system of morality?

> and likely illegal based on the taking clause

How on earth are LLPAs, under any price schedule, a taking under the 5th? Preferably, with citation to relevant authority.

> and the highly discriminatory and unequal nature

All laws are discriminatory, but except when certain protected bases of discrimination or certain important rights are implicated, that discrimination only needs to meet the very deferential standard of being rationally related to a legitimate government purpose to be Constitutionally permissible.

I'd be interested in hearing whether (and, if so, why) you think a standard beyond rational basis review is applicable here and, more critically, your argument for how the applicable standard of review is not met.

Fannie Mae's matrix is (IMO) intentionally misleading to hide the disproportionate rate increases. Here is a normalized chart showing the rate increases [0].

[0]: https://mishtalk.com/.image/c_limit%2Ccs_srgb%2Cq_auto:good%...

This is the upfront fee you pay for the mortgage. Many people opt to pay it over time.

High credit score people still pay less.

To be honest, I'm not sure why credit rating should affect this fee. Those with a low credit rating already pay more in interest.

You’re surfacing a whole different issue, the legitimacy and fraud of the whole credit score system, produced by organizations who have a clear and documented history of fraud. See, housing “bubble”, aka fraud, for reference.

After a quick look at the tables, it looks like the HN title may be opposite the trend at the link.

Here is a normalized chart to show the rate increases [0].

[0]: https://mishtalk.com/.image/c_limit%2Ccs_srgb%2Cq_auto:good%...

The link here is to the old matrix. The new one, linked in the red text at the top of https://singlefamily.fanniemae.com/media/9391/display, actually shows the changes in question.

As others have said, it's not that somebody with a 650 score pays less than someone with 800... it's just that the rate for people with low scores isn't as bad as it used to be, and the rate for people with high scores isn't as good as it used to be.

I want to hear a defense of this or an explanation of it that doesn't start with, "People with a better credit score actually get a lower rate."

Yes, I understand that. I don't understand why you would use people with good credit as a source for helping people with bad credit.

Huh? It's the exact opposite. Even with the recent changes, those with higher (better) credit scores will be given a lower price adjustment percentage, resulting in lower rates for those with better credit. The headline is wildly incorrect.

Can someone explain where I should be seeing the increased rates for higher credit scores? I don’t even think that is the correct loan guidance, it’s the pre-May rate terms. The post May rates are at a link at the top right of the sheet.

I am trying to read the numbers but not sure I can validate whether the title is true or not.

The post is going to be great in figuring out who is reading the content and who is just "reacting"

So I read the linked document twice and I am failing to see how the content matches title. Granted I don't spend much time looking at these documents, but am I missing something?

A false narrative is being pushed here. All conservative outlets are carrying this story without providing any detail or nuance.

Ah. Nuance. I remember experiencing that once.

Headline appears to be a lie and states the opposite of the supplied data (on page 2).

how soon is this going to be gamed using a strawman purchaser, to hold mortgage? you get a low rate, they get a bump in credit rating.

it seems like it would be quite illegal, but a temptation nonetheless.

It would also be very stupid, because someone with bad credit still gets a worse rate than someone with good credit -- it's just that the difference isn't quite as big as it used to be.

I don’t see a single chart in this file that shows a higher interest rate for higher credit scores, it’s always lower for higher scores.

Am I misreading it? Otherwise this seems like misinformation

Yeah, it’s a wildly misleading title.

I could not fit "Increase" into the end of the HN title. Here is a normalized chart of the rate increases [0].

[0]: https://mishtalk.com/.image/c_limit%2Ccs_srgb%2Cq_auto:good%...

Yet another outrageously unfair and destructive rule from the Biden administration. Very disappointing.

But think of how unfairly people with bad credit have been paying more to cover the losses caused by other people with bad credit keeping true to their lived experience of not paying their debts?

(Yes, I know that people with bad credit have many reasons for defaulting, however, they have many reasons for defaulting.)

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