(The Center Square) — Pennsylvania Treasurer Stacy Garrity leads a coalition of state financial officials pushing back against new federal mortgage fees they call “unconscionable.”

“This new policy makes it more expensive for people with good credit to buy houses — and that’s absurd,” she said. “Americans who have built a good credit score and saved enough to make a strong down payment should not be penalized and forced to pay more on their mortgage every single month.”

The letter, sent Monday to President Joe Biden and Federal Housing Finance Agency Director Sandra L. Thompson, includes the signatures of 33 officials from 26 states — all of whom insist the administration should roll back the modified federal mortgage fees structure that applies to borrowers with more substantial down payments.

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The new rates, effective May 1, raise upfront fees for some borrowers with credit scores over 679 and down payments between five percent and twenty percent, according to a chart compiled by the Urban Institute.

At the same time, the chart shows borrowers with down payments of less than five percent will pay smaller fees — no matter their credit score — as part of the administration’s strategy to make homeownership more accessible for buyers with less cash on hand. 

The modified fee structure only impacts some loans backed by Freddie Mac and Fannie Mae, said Adam Russell, a spokesman for the Federal Housing Finance Agency. More than half of mortgages approved in 2020 received funding through government-sponsored entities, as opposed to private lenders.

Russell told The Center Square that federal loans granted to buyers who meet certain income requirements or who qualified using the FHA’s affordable housing programs — HomeReady and Home Possible — will not be subject to the new plan. 

He also said most of the cross-subsidization of fees began in 2022 when the FHA twice adjusted upfront fees for loans on vacation and investment properties, or cash-out refinances.

Americans who have built a good credit score and saved enough to make a strong down payment should not be penalized and forced to pay more on their mortgage every single month.

“These updates only change the price some consumers may pay,” Russell said. “They do not change the credit factors that borrowers need to meet in order to qualify for a loan backed by Fannie Mae or Freddie Mac. Additionally, the updated fees do not represent across-the-board increases or decreases.”

Garrity and other critics said the backward incentive boils down to a middle-class tax hike that takes “money away from the people who played by the rules and did things right.”

In multiple media reports, housing analysts say borrowers with higher credit scores and bigger down payments still get lower interest rates and pay less overall compared to buyers with less favorable loan terms. Higher interest rates, smaller down payments, and added cost of mortgage insurance typically eclipse any savings on up front fees in a matter of years.

In the letter, the officials shared in the administration’s goal of increasing home ownership, but said “confiscating” the money from “hardworking, middle-class American families” and using it as a “handout” goes too far.

Instead, they want to see the federal government adopt policies to reduce inflation, cut energy costs and lower interest rates — all factors that would boost discretionary income and give people more leeway to save for a down payment.

Christen Smith joins The Center Square as its Pennsylvania News Editor and brings with her more than a decade of experience covering state and national policy issues from all angles. She’s a Pennsylvania State University alumna and has been published in the The Washington Examiner, the Pittsburgh Post-Gazette, RealClear and Broad+Liberty, among others.

This article was republished with permission from The Center Square.