People go their whole lives with the understanding that financial responsibility equals good credit and good credit equals good rates on a home loan. It’s simple: If you pay your bills (on time), you are likely to have a good credit score, and a good credit score usually means you will qualify for a good loan.

But that has recently been turned on its head. In an unprecedented move by the Federal Housing Finance Agency (FHFA) to apparently make housing more readily available, FHFA director Sandra Thompson issued a new mortgage rule which essentially decreases the fees paid by those with not-so-stellar credit scores and increases the fees paid by those with good scores. They seem to have abandoned their practice of risk-based pricing for issuing loans in the name of equality.

The FHFA manages Fannie Mae and Freddy Mac, federally-backed home mortgage companies created by the United States Congress. Upwards of 70 percent of home mortgages are owned by Fannie Mae or Freddy Mac. This new rule, which went into effect May 1, will affect most home buyers.

Prior to the new rule, 20 percent down on a 350K home mortgage with a below-average credit score of 640 would have cost approximately $10,500 in fees; now it will be $7,875. Take the same house and the same money down but use a credit score of 740 (considered very good) and the fees jump from $1,750 to $3,062. Not only that, but the monthly mortgage payment could see an increase of $40. Over the life of a 30-year loan, that’s an additional $14,400.

To penalize hard-working Americans and burden them with what is essentially a tax hike while at the same time, rewarding poor financial behavior is unfair. Looking for ways to expand home ownership, specifically for minorities and marginalized communities, is noble. But not at the expense of those who played by the rules. Most first-time homebuyers who have earned favorable credit scores have also worked hard to scrape together the money for a down payment and closing costs, and they have likely carefully budgeted their monthly mortgage. Saddling them with more fees to subsidize those who maybe weren’t as responsible is not only bad politics but bad policy and seems to run afoul of Fanny and Freddy’s mission of providing stability to the housing market.

The Great Recession was not that long ago. 2007-2008 to be exact. The number of subprime mortgages issued, which many believe greatly contributed to the financial meltdown, was as high as 30 percent of all loans in 2006. Subprime mortgages are exactly what they sound like: Mortgages for borrowers with lower credit scores which prevent them from qualifying for conventional loans. Creating another environment of handing out risky loans to those who likely can’t pay them back could land us in another precarious situation.  

This new rule also comes at an especially poor time when the housing market has slowed. Interest rates are high and overall inventory is low. While home prices have softened a bit over the last year, they remain high, further depressing home sales. Adding another roadblock will feel like an additional punch in the gut to those who work in the real estate business.

American consumers are already overburdened with inflation and scarcity; they don’t need additional barriers to home ownership.

34 officials from 27 states are pushing back, demanding the Biden administration rethink this new rule. They advise the administration to look at other avenues of helping people achieve the American dream, such as implementing policies that will reduce inflation and cut energy costs. Congresswoman Bice of Oklahoma introduced a bill to repeal this new rule; several other GOP representatives have co-sponsored. But will the Biden administration listen?

Keep the rules as they were: Good credit equals lower costs and interest rates. Stop rewarding risky behavior and stop penalizing responsible behavior.

Kristen Walker is a policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.