One of the essential lessons that most of us learn early in life is the importance of developing a sense of financial responsibility.
Work hard to earn a good salary. Don’t spend more than you can afford. Save for the future.
Eventually, following these steps will put you in a position where you can afford some of the finer things life has to offer. Behaving in a financially responsible way isn’t always fun in the moment – but it’s worth it when you reap the rewards of your good decisions later on, as you’ll be able to enjoy more and more of the things you want and need.
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It’s one of the most fundamental tenets of our society, and it’s also rooted in one of the fundamental realities of human nature: encourage good behavior, and you’ll get more of it.
But what happens when the incentive structure reverses? We’re about to find out, because that’s what’s going to happen thanks to a new policy from the Biden administration that went into effect on May 1.
The Federal Housing Finance Agency’s new policy will force those with good credit scores to pay more for their mortgages each month, with those extra payments being used to subsidize loans for high-risk borrowers. Experts say homebuyers with credit scores of 680 or higher will now pay about $40 a month more on a $400,000 home loan, with those making 15-20% down payments hit by fees the highest. This equates to a middle class tax hike, and it is atrocious by any measure.
To begin with, it is fundamentally unfair and absurd to impose a policy that punishes those who have acted responsibly, sacrificed and worked hard for a secure financial future for themselves and their families. That’s why I had the honor of joining a coalition of 34 state financial officers from across the country, led by Pennsylvania Treasurer Stacy Garrity, in signing a letter to the Biden administration express his opposition.
But this new policy is more than unfair. It is also deeply reckless. The 2008 financial crisis and mortgage meltdown offered a painful lesson in what happens when the government steps in to pressure those who cannot afford a mortgage into taking one and to undermine the vital role credit scores in assessing the risk level of a potential borrower. My home state of Nevada has been the hardest hit by this crisis, suffering from the highest foreclosure and unemployment rates in the entire country. And the people of Nevada will again be placed in a position of exceptional vulnerability under the Biden administration’s new policy.
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For its part, the administration defends its policy on the grounds that it is simply trying to close a gap in home ownership between high-income and low-income Americans. The administration is also anticipating political gain through what is only the latest of its many wealth redistribution programs.
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But while increasing homeownership opportunities is a laudable goal, the right way to do it is to take steps to eliminate unnecessary regulations, reduce inflation and reduce energy costs – and not to subvert fundamental market principles into political considerations.
If political advantage is what the Biden administration is indeed expecting here, it could be in for a harsh surprise. The more Americans learn about this new policy, the more they are rightfully outraged and insulted that the administration is adopting a plan that perversely punishes responsible behavior and removes Americans’ incentives to manage their finances wisely and prudently.
The administration should back down immediately.
Andy Matthews is Nevada’s state comptroller.
Syndicated with permission by RealClearWire.
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