Obama Pushes to Give Home Loans to Lower Credit Borrowers

Obama Pushes to Give Home Loans to Lower Credit Borrowers

The Obama Administration is angling to allow people with questionable credit to receive home loans, encouraging lenders to use more subjective judgment, and pushing banks to utilize programs through the Federal Housing Administration (FHA)–an executive branch agency that sticks taxpayers with the bill if borrowers default on their FHA home loan.

FHA Commissioner Carol Galante says people with lower credit scores should be allowed to borrow. “My view is that there are lots of creditworthy borrowers that are  below 720 and 700–all the way down the credit-score spectrum.  It’s important you look at the totality of that borrower’s ability to pay,” said Galante.

But former Fannie Mae executive and American Enterprise Institute fellow Ed Pinto says such a move would be a mistake. “If that were to come to pass, that would open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from,” said Pinto.”

According to the Washington Post, it is a move “skeptics say could open the door to the risky lending that caused the housing crash in the first place.”

The Obama Administration is touting the recent drop of 1.7 million “underwater” mortgages (when a homeowner owes more on their mortgage than their house is worth) as further evidence that a housing recovery is underway. Still, 21.5% of U.S. home mortgages–10.4 million homeowners–remain underwater.

“If you were going to tell people in low-income and moderate-income communities and communities of color there was a housing recovery, they would look at you as if you had two heads,” said President of the National Community Reinvestment Coalition John Taylor. “It is very difficult for people of low and moderate incomes to refinance or buy homes.”

 The Obama White House is also working in tandem with the FHA to assure banks that if they comply with new rules, they will not lose their guarantees or be subject to legal action if homeowners default.

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