The New Homebuyer Credit Rule Lacks Common Sense

The Biden Administration is set to enact a rule on May 1st that will force homebuyers with high credit to take on higher interest rates, which will be used to subsidize, giving homebuyers with poor credit a lower interest rate. Yes, you read that correctly: Individuals who have built up a good credit score will now be punished by being handed higher mortgage rates.

Opposition to this new rule is the farthest thing from political; it is common sense. Even former Federal Housing Association Commissioner under Barack Obama, David Stevens, has claimed the plan is absurd. In nearly every way imaginable, the new rule will have the opposite of its intended effect.

First, the rule is monstrously unfair and destroys the incentive to be financially accountable. Credit scores are meant to reflect fiscal responsibility: Individuals who have paid their debts in a timely manner build good credit, while those who have taken on risky loans, failed to make payments on time, or simply spent recklessly have poor credit scores.  Those who sacrificed and made responsible decisions should never be forced to cover those who did not, but that’s what this new rule entails. As was the case with the student loan bailout, those who either paid their debts properly or refused to borrow what they couldn’t pay back will now find themselves on the hook to pay even more, just to help cover those who did the opposite. This is indecent and wrong.

Second, this new rule will only make the problem it is trying to solve much worse. Home sales are indeed down and have been falling for some time. Last month, in March, housing sales slowed for the 13th time in the past 14 months. A stagnant economy and high inflation have kept interest rates high and kept potential buyers from taking on mortgages.  It’s not much more complicated than that. The Administration may wish to incentivize homebuying for those with poor credit and jumpstart the housing market in what is traditionally its busiest season. But unfairly higher interest rates will only keep those with good credit scores away, making the housing market situation worse, not better.  Manipulating the private marketplace to manufacture an outcome you perceive as ‘fair’ is never the right solution.

Instead, the Biden Administration should address the bigger problems. Current housing market woes are not the result of low-income buyers being unable to buy homes. They are the result of massive government spending coupled with economic policies that have driven up energy prices, giving America its highest levels of inflation in decades.  Interest rates have risen from 5.11% to 6.39% in just the past year, the result of an effort to get inflation back under control. If inflation remains high, though, so will interest rates (and mortgage rates along with them). That’s bad for all Americans, regardless of credit score. And it’s a problem that won’t be solved by manipulating mortgage rates in the housing market.

The Biden Administration should employ common sense, not unfair redistributive measures, by pursuing deregulation and cutting government spending. The federal government’s decision to funnel massive amounts of money we don’t have towards green energy initiatives is not going to deliver good outcomes for the American people in the short or long-term. Instead, it should remove restrictive regulations in the energy industry and get America back to the energy independence we have in the Trump Administration.  It should also pursue deregulation in the homebuilding industry, given that new housing inventory is extremely low. According to the National Association of Homebuilders, regulations imposed by government at all levels account for nearly $100,000 in extra building costs per house, which makes every home far more expensive to buy and more difficult to build. Deregulation is a common-sense solution to bring down costs for all buyers.

Regardless of political party, punishing fiscally responsible individuals and rewarding those who have been reckless is deeply wrong. The Biden Administration should instead consider common-sense solutions to get both the housing market and the American economy back on track. Failure to do so incentivizes further risky behavior and poor outcomes for the American people.

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