The Biden administration has pushed for easier home financing for higher-risk borrowers amid surging housing costs, increasing the risk of a wave of defaults, experts told the Daily Caller News Foundation.

The government-sponsored corporations Freddie Mac and Fannie Mae, regulated by the Federal Home Financing Administration (FHFA), have taken a number of steps to increase financing opportunities for higher-risk borrowers under the Biden administration, including subsidizing higher-risk borrowing by hiking rates on lower-risk borrowers. Many of these actions have led to Americans taking on an increasingly large amount of debt while lending facilitated by government entities has grown in size, creating a growing possibility that a wave of foreclosures and defaults could create a shock in the housing system, according to experts who spoke to the DCNF.

"The new Fannie and Freddie mortgage pricing directive raised rates on low-risk borrowers and reduced them on high-risk borrowers," Jason Sorens, senior research fellow at the American Institute of Economic Research, told the DCNF. "This is not really a free market to begin with, but the risk here is creating something like the subprime crisis, where high-risk borrowers are encouraged to take on debt they can't repay. Again, this has the potential to hit the bottom line for Fannie and Freddie."

The guidance from the FHFA to Freddie Mac and Fannie Mae to essentially subsidize higher-risk borrowers took effect in May 2023, according to the Congressional Research Service. For example, under the new guidance, those with credit scores between 640 and 659 who put down a down payment between 15% and 20% would have a fee rate charged of 2.250% instead of 2.750%, while borrowers with a credit score between 760 and 779 with the same down payment would have their added rate hiked to 0.625% instead of 0.250%.

Rising housing costs have also led the entities to raise how much housing debt Americans can take on through the government entities, with the FHFA announcing near the end of 2023 that it was raising the mortgage limit for single-family homes to nearly $1.15 million in some areas, compared to the standard limit of $766,550, allowing Americans to take out even larger government-facilitated loans.