There has been a surge in the number of new homeowners in the US in recent years.
Despite that, affordable housing is yet to be accessible to every American.
Real estate experts often highlight the challenges African Americans face regarding home buying.
In fact, the National Association of Realtors shows that the homeownership rate amongst Black Americans remains significantly lower at 44%, having only witnessed a 0.4% increase in the last ten years.
This is approximately 29% below their White American counterparts at a 72.7% homeownership rate.
This is the largest difference in Black-White homeownership rates in a decade.
The association also acknowledges that Black homeowners and renters experience more significant financial burdens than other racial groups.
With the help of a reputable commercial tenant representative such as Jeff Tabor, minority groups can conveniently secure top commercial spaces available in the market.
The FHFA aims to address the existing inequalities by introducing fresh federal housing regulations.
Simultaneously, they intend to enhance housing choices, to make them more accessible for prospective homeowners.
However, the implementation of these regulations may inadvertently penalize diligent Americans who have painstakingly built their credit scores over time.
The proposed rule states that every individual seeking a $400,000 home loan with a credit score of 680 and above would have to bear an additional monthly burden of $40, unlike those with lower credit scores.
Consequently, this regulation seems to prioritize individuals with lower credit scores, potentially disadvantageous to those with higher credit scores.
The rule came into effect on May 1, this year just as we approached the peak spring buying season.
This will potentially affect mortgages provided by private banks nationwide based on loan-level price adjustments (LLPAs).
Consumers with high-credit scores ranging from 680 to above 780 will probably experience an increase in mortgage costs, especially those who make a down payment of 15% to 20% on a home.
These mortgage fee adjustments coincide with the first housing price increase in 2023 after nearly a year of relative market stability.
The rise in housing costs can be attributed to the Federal Reserve’s efforts to curb inflation by increasing interest rates and the ever-increasing number of home buyers, hence higher demand.
These federal adjustments will heavily impact individuals who seek to obtain new mortgages or those refinancing their existing mortgages through private banks, which will consequently change the interest rates paid by most homebuyers.
However, it’s crucial to note that the difference does not lie in high-income borrowers paying more than low-income borrowers but rather in the gap between the relative amounts paid.
Finding The Balance
While the concept of good credit borrowers footing the bill for higher risk borrowers may be contentious, it represents an evolving approach in the lending industry.
While risk-based pricing can enhance financial inclusivity, it should not come at the expense of penalizing those who have diligently maintained good credit scores.
Some advocate for a more holistic assessment of a borrower’s financial profile.
Beyond credit scores, it involves evaluating factors like income stability, employment history, and debt-to-income ratios.
Alternative approaches that consider a broader range of factors in loan assessments can help create a more equitable and inclusive mortgage lending system, promoting financial well-being for all individuals, regardless of their credit history.
Lenders and regulators face the task of finding a delicate balance that promotes responsible borrowing, assists individuals with limited credit histories, and cultivates a lending landscape that recognizes both responsible financial management and endeavors to enhance creditworthiness.
In essence, a just and inclusive lending system is one that benefits all borrowers while upholding the integrity of the credit market.
Achieving a fair balance between promoting financial inclusion and maintaining the integrity of the credit system is crucial.
Lenders must consider alternative methods to address the needs of higher risk borrowers without unduly burdening good credit borrowers.
One possible solution could be the development of specialized loan products targeted specifically at higher risk borrowers.
These products could offer competitive interest rates and terms tailored to their needs, while ensuring that the financial burden does not fall disproportionately on good credit borrowers.
Prospective homeowners should not wait; if interest rates have plummeted since the time you obtained your mortgage, you can refinance it to secure a mortgage with a better interest rate.
It is not always profitable to wait indefinitely expecting prices to drop. Historical trends also prove that house prices tend to always rise over time.