by Andy Matthews
One of the essential lessons most of us are taught early in life is the importance of developing a sense of financial responsibility.
Work hard to earn a good paycheck. Don’t spend more than you can afford. Save for the future.
Eventually, following these steps will land you in a position where you can afford some of the nicer things life has to offer. Behaving in a financially responsible way isn’t always fun in the moment – but it’s well worth it when you get to reap the rewards of your good decisions later on, as you’re able to enjoy more and more of the things you want and need.
It’s one of the most fundamental principles of our society, and it’s also rooted in one of the basic realities of human nature: Incentivize good behavior, and you’ll get more of it.
But what happens when the incentive structure becomes inverted? We’re about to find out, because that’s what’s going to occur thanks to a new Biden administration policy that took effect on May 1.
The new Federal Housing Finance Agency policy will force those with good credit scores to pay more for their mortgages each month, with those extra payments used to subsidize the loans of higher-risk borrowers. Experts say that homebuyers with credit scores of 680 or higher will now pay roughly $40 per month more on a home loan of $400,000, with those who make down payments of 15 to 20% hit with the highest fees. It amounts to a tax increase on the middle class, and it’s atrocious in every way imaginable.
For starters, it is fundamentally unjust and absurd to impose a policy that punishes those who have acted responsibly, sacrificed, and worked hard toward a secure financial future for themselves and their families. That’s why I was honored to join a coalition of 34 state financial officers from around the country, led by Pennsylvania Treasurer Stacy Garrity, in signing a letter to the Biden administration voicing opposition.
But this new policy is more than simply unfair. It’s also deeply reckless. The 2008 financial crisis and mortgage meltdown offered a painful lesson in what happens when government intervenes to push those who cannot afford a home loan to take one and to undermine the critical role that credit scores play in assessing a prospective borrower’s risk level. My home state of Nevada was hit the hardest by that crisis, suffering under the highest rates of foreclosures and unemployment in the entire nation. And Nevadans will once again be put in a position of exceptional vulnerability under the Biden administration’s new policy.
For its part, the administration defends its policy on the grounds that it’s simply trying to close a gap in house ownership between higher- and lower-income Americans. The administration also anticipates some political gain through what is merely the latest of its many wealth redistribution schemes.
But while increasing opportunities for home ownership is a laudable goal, the right way to accomplish this is by taking steps to eliminate unnecessary regulations, reduce inflation, and bring down energy costs – not to subvert basic market principles to political considerations.
If political advantage is what the Biden administration is indeed expecting here, they may be in for a harsh surprise. The more Americans learn about this new policy, the more they are rightly outraged and insulted that the administration would adopt a plan that perversely punishes responsible behavior and removes Americans’ incentives to manage their finances wisely and prudently.
The administration should reverse course immediately.
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Andy Matthews is the Nevada state controller.
Photo “Man and Woman Looking at Their House” by Kindel Media.