The Obama administration is demanding that minorities again receive preferences to qualify for mortgages–the same policy that helped trigger the sub-prime mortgage crisis and the 2007-8 financial crash.
Efforts by Fannie Mae and Freddie Mac to “move aggressively” to implement new credit scoring models that would expand the percentage of Americans qualifying for a home mortgage appear to have stalled on the Obama administration’s policy.
As Breitbart News has reported, the 2010 ‘”Dodd-Frank Wall Street Reform and Consumer Protection Act” regulatory structure slashed the percentage of Americans qualifying for a mortgage from 52 percent before President Barack Obama to 26 percent afterwards.
The National Association of Realtors noted that five years after the law’s passage, the percentage of first-time-home-buyers had plunged to the “lowest point in nearly three decades and is preventing a healthier housing market from reaching its full potential.”
President Obama said at the time of passage, “With this law, we’ll crack down on abusive practices in the mortgage industry. We’ll make sure that contracts are simpler–putting an end to many hidden penalties and fees in complex mortgages–so folks know what they’re signing.”
But the real impact of the legislation was to punish the average American interested in buying a home by driving up the average FICO credit score required to qualify for a bank issued mortgage from about 710 to a prohibitive 770, according to Bloomberg.
Federal Housing and Finance Agency Director Mel Watt told Congress last November that “we have the pedal to the metal” on adopting a new model to improve mortgage qualification. But community organizers have been demanding that Fannie Mae and Freddie Mac adopt new FICO credit score models or an alternative by VantageScore that would make it easier for Hispanics and African-Americans to obtain mortgages.
Adopting big preferences for minorities to access mortgages sounds very similar to the federal Community Redevelopment Act. The well-intentioned law paved the way for the explosion of sub-prime lending that contributed to the financial crash. American taxpayers were forced into a takeover of Fannie Mae and Freddie Mac in September 2008 that included funneling $189 billion into these government-sponsored-enterprises (GSEs).
The GSEs currently use the FICO 4 credit scoring model that was introduced in 2004. But FICO has made significant changes since then, and lawmakers have urged Fannie and Freddie to move to the newer model referred to as FICO 9. Watt told House Financial Services Committee members that he has instructed Fannie and Freddie to evaluate both the feasibility and the operational challenges related to using the updated FICO model and alternative models like VantageScore.
San Jose-based FICO updated its credit scoring model last year and now excludes certain late payments associated with medical collections. The company’s CEO, Will Lansing, believes that FICO 9 is “our most predictive general purpose credit score.”
But President Obama and his community organizer allies complain that FICO 9 is still dependent on data submitted to the credit bureaus. They believe that credit scores should include the regular rental and utility payments history that are captured by VantageScore, but are not reported to credit bureaus unless there is a major problem.
The real issue is not easing of qualifying credit scores from the overly cautious FICO 770 back to a reasonable FICO 710. It is the promise by VantageScore’s CEO Barrett Burns that he can add credit scores for 30 million more people with 9.5 million being “Latino or African-Americans.” Burns believes about 2.7 million have credit scores above 600 and could qualify for a Federal Housing Administration single-family loan.
National Mortgage News reported that Director Watt cautioned that the “costs of changing from one FICO model to another FICO model or from FICO to an alternative credit scoring are heavy and the systems that have to be adjusted are complicated.”