Biden’s mortgage redistribution plan may burden one minority group the most: experts

A Biden administration rule that will have homebuyers with good credit pay more to subsidize riskier borrowers may have a disproportionate impact on Asian Americans, who already face barriers to qualify for home lending.

Under new rules from the Federal Housing Finance Agency set to take effect May 1, borrowers with lower credit ratings and less money for a down payment will qualify for better mortgage rates than they otherwise would have, while those with higher ratings will pay increased fees.

But the burden of the new rules may disproportionately fall on Asian American homebuyers, who as a group have credit ratings that are better than any other racial demographic. According to a report by Investopedia, Asian Americans, who have an average credit score of 745, are the only racial demographic with a rating classified as "very good" by widely used FICO standards.

The 745 average credit score for Asian Americans came in 11 points higher than White Americans, who have an average credit score of 734. Asian American scores also came in ahead of Hispanic and Black Americans, who average ratings of 701 and 677, respectively.

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A person's credit score is one of the most important indicators of creditworthiness for lenders, helping to determine if a prospective borrower will qualify for a loan and what interest rate will apply.

But those with higher scores could effectively be punished for their creditworthiness under the new rules, with experts estimating that borrowers with a score above 680 could expect to pay an extra $40 per month on a $400,000 mortgage.

Richard Stern, director of the Grover M. Hermann Center for the Federal Budget at The Heritage Foundation, told Fox News Digital the new rules will act like a tax increase to highly-qualified homebuyers.

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"It is mechanically a tax increase to cover an increase in welfare. There's no other way to spin it," Stern said. "A government-sponsored entity is saying that if you have good credit, we're going to have you pay more. And we're going to use that to have other people pay less who have less money and a lower credit score."

That reality could be even harsher for Asian Americans, who have already faced barriers to homeownership despite having higher average credit scores. According to a 2021 study by the Urban Institute, Asian Americans have a lower homeownership rate (57%) than White Americans (72%).

One reason for this disparity, the study found, is that Asian Americans have higher mortgage denial rates than White Americans.

"We found that the denial rate for Asian mortgage applicants is 8.7%, compared with 6.7% for White mortgage applicants," the authors of the study wrote.

That reality comes despite Asian Americans having a higher average credit score than any other demographic.

Other factors such as income, debt-to-income ratio and geographic location all play a role in whether a loan will be approved. However, when examining Home Mortgage Disclosure Act (HMDA) data, the study found that Asian Americans experience higher mortgage denial rates when factoring in all lending underwriting standards.

"Asian applicants are denied more frequently than White applicants at all income levels," the study notes. "In 2019, median income was $107,000 for Asian applicants and $82,000 for white applicants. For Asian applicants with annual incomes below $50,000, 16.3% were denied a mortgage, compared with 11.3% of White applicants in that income bracket."

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That trend continued the higher up the income ladder individuals climb, with high-income Asian American mortgage applicants being 50% more likely to see their application denied.

The study also found that Asian Americans with similar debt-to-income ratios to White applicants also had higher rates of mortgage denial. Asian-American applications with a ratio below 30% and an income below $50,000 were denied at a rate of 11.5%, compared to 9.2% for white applicants. 

Like income, that trend continues the more an applicant makes, showing Asian Americans with an income above $150,000 and a debt-to-income ratio of 43% had their applications denied at a 17.3% rate, compared to 10.7% for White applicants. 

Meanwhile, geography seemingly could not explain the barriers Asian borrowers face either.

"In metropolitan areas with large numbers of Asian mortgage applicants, we found that the denial gap persists and holds regardless of home price tier," the authors wrote, adding that the results held true in both expensive and middle- or low-price housing markets.

"This finding suggests that Asian applicants are consistently denied more frequently than White applicants, regardless of home price," the study states.

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While the study showed a clear barrier to homeownership for Asian Americans, less is known about why the Asian applications face higher denial rates.

"More research is needed to understand why Asian homebuyers are denied mortgages more frequently than White borrowers, despite having, on average, higher credit scores and higher incomes," the study concluded. "Failing to address this denial gap would keep more potential Asian homebuyers out of homeownership and widen the homeownership gap between Asian and White households."

In the meantime, new rules that punish those with better creditworthiness could be another unwelcome obstacle for Asian Americans. According to Stern, such unintended consequences are a common byproduct of government intervention in the market.

"The reason we're having less inclusion, fewer people (making) it up the social ladder, is because the left has controlled the government for the last few decades, increasing regulations, increasing taxes, increasing the size of the government and destroying the free market enterprise system that has lifted so many people out of poverty," Stern said. "These bureaucrats and regulators aren't the ones who are going to be hurt by the collateral damage."

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The White House did not immediately respond to a Fox News request for comment. 

Reached for comment by Fox News Digital, an FHFA spokesperson pointed to a statement by agency Director Sandra Thompson last week, where she noted the rules were meant to eliminate fees for "borrowers with lower incomes – not lower credit scores," which would be primary supported by "higher fees on products such as second homes and cash-out refinances."

"Some updated fees are higher and some are lower, in differing amounts. They do not represent pure decreases for high-risk borrowers or pure increases for low-risk borrowers. Many borrowers with high credit scores or large down payments will see their fees decrease or remain flat," Thompson said.