Is the Housing Market Headed for Another Crash?
Here’s a slap for all the responsible folks out there who pay their bills on time and manage their affairs properly to maintain a good credit score. And it may be coming compliments of Fannie Mae and Freddie Mac.
I’m sure no one has forgotten the housing collapse of 2007 and 2008 and that it was subprime mortgages and the horrible mismanagement in the mortgage business that brought it down.
And what got it rolling was the government’s banking regulators who forced banks and lenders to accept subprime mortgages and lower credit scores from borrowers.
Well, they’re at it again. But this time, it’s the nonbank lenders like mortgage companies that want the government to lower the credit requirements to qualify for a mortgage.
This is unbelievable!
Currently, government mortgage agencies, Freddie and Fannie, require mortgage lenders to use a FICO score to meet minimum lending requirements.
But some nonbank lenders want them to accept another credit ranking system called VantageScore. With significantly lower standards, it will make 7.6 million more people eligible to qualify for a mortgage.
The nonbank lenders say FICO is too tough and that the standards should be lowered.
FICO requires you have a credit account or loan for six months before it can be used for FICO scoring. VantageScore requires only one month. You make one on-time payment on loans or credit cards and that qualifies a person to borrow a couple hundred thousand dollars for a mortgage?
Come on! One month means nothing!
The nonbank lenders say the use of FICO scores also blocks out borrowers who have spotty credit histories or have gone through a repossession or bankruptcy.
Isn’t that what we’re trying to avoid… people with a history of not paying their bills?
Banks are countering, and rightfully so, that the current system allows for strong underwriting standards. Introducing a new, weaker scoring model could put that at risk.
That seems pretty obvious to me!
Lowering credit standards worked so well the last time, it took us to the edge of the financial abyss. So let’s give it another go?
What am I missing here?!
If there is one absolute truth I’ve learned from my 40 years in the housing market, it’s that the housing and mortgage industry will find a way to screw it up.
The last time it was lending standards, but in the past, it has been overbuilding, overleveraging, over-everything. The history of the housing and mortgage industry is one of boom and bust – and it’s spotty, to say the least.
Housing prices are finally moving up. The credit quality of mortgages is as good as it has ever been. And no, we do not need an industry with a solid record of overages pushing for easier lending.
Does anyone remember how much lower lending standards cost us, the taxpayers, last time?
And how about the fact that almost half of baby boomers have virtually nothing saved for retirement? The equity in their homes is all some have. If the market crashes again, that’s gone too.
There must be an awful lot of money being spread around in campaign contributions in Washington to even get this one to the discussion phase.