(NEW YORK) — If you’re looking to buy a home, new federal rules may impact how much you pay for a mortgage.

Beginning May 1, upfront fees for loans backed by Fannie Mae and Freddie Mac will be adjusted because of changes in the Loan Level Price Adjustments (LLPAs). Those fees are based on things including the borrower’s credit score, size of the down payment, type of home and more. In some cases, people with better credit scores may pay more in fees, while those with lower credit scores will pay less.

Here’s what to know about the new federal rules:

Why is this happening?

The rule changes are part of the Federal Housing Finance Agency’s (FHFA) efforts to provide “equitable and sustainable access to homeownership” and to strengthen capital at Freddie Mac and Fannie Mae.

“The [Biden] administration’s stated purpose behind making these changes is to help make it easier for borrowers who have historically been disadvantaged and have had a hard time accessing credit,” Realtor.com chief economist Danielle Hale told ABC News.

Who does it impact?

The new rules only apply to loans backed by Fannie Mae and Freddie Mac, and impact any new or refinanced home loan signed May 1 or later. According to Urban Institute, Fannie Mae’s and Freddie Mac’s share of the mortgage market collectively comprised nearly 60% of all new mortgages during the pandemic in 2020. That’s compared with 42% in 2019.

Homebuyers who put down a larger payment of 15% to 20% could see a bigger increase in mortgage fees, but Bankrate.com mortgage analyst Jeff Ostrowski said that shouldn’t change a borrower’s thought process.

“The new matrix everyone is trying to decipher is only part of the equation,” Ostrowski told ABC News. “The other part is mortgage insurance: Borrowers who put less than 20% down have to pay mortgage insurance that more than offsets the lower upfront fee. So there’s no financial advantage to the borrower to put down less than 20%.”

How will it work?

“The new fees are slightly more expensive for some borrowers with good credit, and slightly less expensive for some borrowers with less-than-perfect credit,” Ostrowski told ABC News.

If you have a stellar credit score, you’ll still pay less than if you have a weak one, but the penalty for having a lower credit score will now be smaller than it was on May 1.

“Because of these changes, the advantage of having a higher credit score, or making a larger down payment, is not as big as it used to be,” Hale said.

For example, beginning May 1, a buyer with a good credit score of 750 who puts down 25% on a $400,000 home would now pay 0.375% in fees on a 30-year loan, or $1,125, compared to 0.250%, or $750, under the previous fee rules.

Meanwhile, a buyer with a credit score of 650 putting a 25% down payment on a $400,000 home would now pay 1.5% in fees on a 30-year loan, or $4,500. That compares with 2.75%, or $8,250, under the previous rules.

According to the FHFA, the new rules will redistribute funds to reduce the interest rate paid by less qualified buyers.

Is this a good thing?

It depends on who you ask. Critics say the new rules penalize people with good credit, using them to subsidize loans of riskier borrowers.

“It’s another subsidy to try to buy votes,” former Home Depot CEO Bob Nardelli told ABC News.

The new mortgage fee rules do nothing to address ongoing inventory challenges in the housing market, which is putting upward pressure on home prices. The median U.S. home price in March was $400,528, according to the realty broker Redfin.

Some housing experts fear the new rules will encourage banks to lend to borrowers who perhaps shouldn’t qualify for a mortgage in the first place. Lending to unqualified buyers is what led to the financial crisis of 2008; banks gave too many unqualified buyers home loans that they ultimately couldn’t pay back.

“This confusing approach won’t work and, more importantly, couldn’t come at a worse time for an industry struggling to get back on its feet after these past 12 months,” David Stevens, a former commissioner of the Federal Housing Administration during the Obama administration, wrote in a social media post. “To do this at the onset of the spring market is almost offensive to the market, consumers and lenders.”

Even with the changes, Ostrowski said that overall, mortgage fees continue to favor borrowers with good credit.

“You still get a much better deal with a strong credit score,” he said. “The fee reductions don’t apply to borrowers with credit scores of less than 680 — so tanking your credit score in hopes of scoring a better deal would backfire.”

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(WASHINGTON) — After saving up for three years during which they sometimes worked 80 hours a week, Tawanda Hall and her husband purchased their dream home in the suburbs of Detroit in 2010. The five-bedroom house was supposed to be their “forever home” — it had enough room for their family, and the location offered good schools in the area for Hall’s two kids.

“It was almost like a dream,” Tawanda Hall told ABC News Senior National Correspondent Steve Osunsami. “It was a brick home. It had a big yard, open space, a lot of different opportunities around the corner from school, around the corner from the rec center and the library.”

The house was purchased for $67,000, according to public records. Hall told ABC News that after they moved in, she and her husband put in a lot of money to renovate the home.

“Every time we got some money here or there, we just put it in,” Hall said. “I don’t even know where we got half the money. I was working, he was working, and it was coming together.”

“I would say,” Hall said, “we finally got it together right when we lost it.”

Property seizure

Around 2016, the Halls encountered financial hurdles and fell behind on their property taxes. Despite their efforts to chip away at their back taxes with a payment plan they set up with Oakland County, Michigan, they received an eviction notice for missing tax payments.

At the time, the Halls owed $22,654 in property taxes, including interest and penalties. They lost their home when the local county foreclosed on it in early 2018.

But the nightmare for the Halls didn’t end there.

In the eight months that followed, the property went through a maze of ownership — from Oakland County to the city of Southfield and then to a for-profit organization, the Southfield Neighborhood Revitalization Initiative, which says in court documents that they rehabbed the property then sold it in 2020 for $308,000.

That amount was more than four times what the Halls had paid for the house. The difference between what the home sold for and the taxes the Halls owed on it was more than $285,000.

The Halls, however, received nothing from the sale.

Property seizures like Halls’ — where the government takes property to pay an outstanding tax debt, and then someone other than the homeowner keeps more money than the taxes that were owed — is legal and happening in 11 states and Washington, D.C., according to Pacific Legal Foundation, a nonprofit public interest organization.

According to the group, from 2014 to 2021, homeowners altogether lost more than $860 million in the 8,950 homes that localities and private investors foreclosed on then resold for more money than what was owed in taxes.

Kenson Siver, the mayor of the city of Southfield — which was involved in the handling of the Halls’ home — told ABC News in a statement that he is supportive of the Southfield Neighborhood Revitalization initiative after “witnessing devastation to the neighborhoods after banks sold properties for below market value.” He said that people who can’t afford their homes face tax foreclosure by the county.

Officials from Oakland County and the Southfield Neighborhood Revitalization Initiative did not respond to a request for comment by ABC News.

Enter the Supreme Court

On Wednesday, the Supreme Court heard the case of Geraldine Tyler, a 94-year-old widow from Minnesota who accrued a tax debt of $2,300 that ballooned to $15,000 with interest, fees and other penalties. Hennepin County seized Tyler’s home and sold it one year later for $40,000 without returning the surplus of the sale.

“It’s just like if you owed me $14 and I reached in your wallet and I took everything, no matter how much was in your wallet,” said Christina Martin, a senior attorney at Pacific Legal Foundation who is representing Tyler. “When the government takes home equity from someone like Tawanda and takes more than it’s owed … it’s unfair and it’s unconstitutional and I really hope the Supreme Court agrees.”

The justices will decide whether seizures like Tyler’s violate the “Takings Clause” of the constitution’s Fifth Amendment, which says that “nor shall private property be taken for public use, without just compensation.”

Ralph Clifford, a law professor at the University of Massachusetts who has studied the practice, said the issue comes down to two questions.

“What they’re going to talk about at the Supreme Court are two things: One, if you take somebody’s property, you have to pay them a fair value; and two, the government cannot take more than it’s owed,” said Clifford.

“I think the Due Process clause requires the government to give back to the taxpayer anything that is not owed,” Clifford said. “The tax debt, yes; interest on the tax debt, OK. But if you have a $30,000 debt and you’ve taken a $300,000 property, take your $30,000 and give $270,000 back to the property owner. Because that is theirs, it’s not yours.”

In a statement to ABC News, Hennepin County officials said that in Minnesota’s property tax collection system, when someone abandons their property by not paying property taxes, “title to the property transfers to the state.”

“When properties are sold, net proceeds offset the loss to school districts, cities, and the county of uncollected property taxes,” said Hennepin County Assistant County Administrator Dan Rogan in the statement.

“Forfeiture is not a source of profit” for the county, Rogan said, adding that “factoring in all costs, Hennepin County’s (forfeiture) program does not manage to break even.”

Officials in municipalities like Hennepin County say they see forfeiture and resale as two separate steps. Per the law, they say that if you don’t pay your taxes, with proper notice and a chance to cure, you forfeit your property — period. Once you do, it’s no longer yours and state can do whatever it wants with it.

Courts have previously ruled in favor of municipalities because homeowners are given multiple opportunities to avoid foreclosure. In court filings, Oakland County, Michigan officials said they follow a “carefully reticulated, nearly three-year process that includes ample notice and multiple chances for the owner to pay the delinquent taxes.”

The Eighth Circuit U.S. Court of Appeals has sided with government officials who argued that “nothing in the constitutions of the U.S. or Minnesota, nothing in any federal or state statue, and nothing in federal or state common law give the former owner of a piece of property that has been lawfully forfeited to the state and then sold to pay delinquent taxes a right to any surplus.”

And those who support the practice say that unpaid taxes lead to abandoned homes and distressed neighborhoods, and that financial incentives are needed to attract people who want to come in and revitalize neighborhoods.

But Martin told ABC News the incentives are part of the problem.

“[This] happens because these legislatures have passed these laws that have these built-in perverse incentives that make it profitable for counties to foreclose on people,” Martin said.

She added that she is not challenging the government’s power to collect taxes and add on interest, penalties and other costs.

“What we’re saying is, there’s a limit,” Martin told ABC News. “You don’t get to just take everything. What we’re saying is, you can seize the property, but when you sell it, you don’t get to take everything.”

“They sold it for $40,000,” Martin said of Tyler’s home. “They should take their $15,000 and be happy with that and give the remainder back to Ms. Tyler.”

A national issue

Across the country, local lawmakers have taken up the issue, with some introducing their own bills to ban the practice.

ABC News spoke with Massachusetts Sen. Mark Montigny, who introduced a bill in the state Senate that would protect homeowners’ equity in a tax foreclosure.

“The most important thing it does is it basically suggests that the homeowner has a remedy,” Montigny, who has been working to ban the practice in Massachusetts for years, said of the bill. “They have an ability to pay off and can continue to stay in their home. And if they are foreclosed upon, they won’t have their equity stolen.”

Over a 6.5-year period, at least 254 Massachusetts homeowners lost a collective $60 million in home equity to municipalities, according to Pacific Legal Foundation.

“It’s unconscionable,” Montigny said of the practice. “You can collect your attorney’s fees, your fees that you went through the foreclosure process, but you should not be able to steal the equity from people who are struggling.”

“[The law] absolutely allows the city to engage in this, to do an improper job of notice, to disrespect or at least be indifferent about the dignity of the homeowner,” said Montigny.

Martin and other experts told ABC News that the practice has resulted in local governments creating special loopholes to allow them to keep the forfeiture surplus — so long as the property is used for public purposes.

Clifford, the law professor, told ABC News that whenever profits are available, “corruption is a possibility.”

“Where there’s money to be made, people are going to come out of the woodwork to make that money,” Clifford said.

In the meantime, Hall is still wondering if she will ever see the surplus from the sale of her home.

After the U.S. Court of Appeals for the Sixth Circuit ruled that the government violated Hall’s constitutional rights and that the government must pay compensation when it takes private property, Oakland County appealed the decision and filed a petition to the U.S. Supreme Court, arguing for the case to be dismissed.

Hall says she felt she was protected because her home was mortgage-free and she was on a payment plan with the county.

“I wish I would have just made sure those taxes were paid,” Hall said. “Because I left a window for someone to come in and change my life.”

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