Like clothing styles. You look at men’s suits today and they look a lot like the ones the Beatles wore back in the 60’s. Women appear to once again be wearing Capri pants. Ties are thinner and skirts are shorter. Slight variations. But, sooner or later it all comes back.
Same seems to be true in mortgage lending; more specifically in underwriting. It’s once again time to look at the big picture when approving a borrower. Depending on a credit score is not fair to the consumer. Really?
After all, it was the unscrupulous mortgage lenders that ruined so many consumer’s credit scores in the first place. In the early 2000’s, lenders forced consumers to take out mortgages on existing and new homes that they just couldn’t afford.
It wasn’t the consumer’s fault that they couldn’t pay and defaulted on their loans, ending up in foreclosure.
Now, those defaults and foreclosures have ruined their credit scores. Luckily, through information provided by the credit repositories, consumers now realize the importance of a good (high) credit score. Oh, thank Heaven for Equifax.
Consumer credit scores are improving but many still have the stigma left over from the housing crash. These consumers are afraid to jump back into the water.
The newer generation of potential homebuyers is a little hesitant as they face tougher credit standards and have seen what happened to the prior generation.
It all comes back to the lenders. Now, it’s up to lenders to educate consumers on the many loan programs for which they may qualify. Lenders are offering lower down payments and lower credit score requirements.
Further, the call is for lenders to take a more holistic view of a consumer’s qualification for a loan. Lenders should look at the whole picture; not only the consumer’s stagnant credit score.
With a credit score being just a snapshot of a moment in time, it will help determine a borrower’s credit profile, but it won’t fully demonstrate all their patterns among other components. These components include assets, income, and employment. Can you say trended credit data? It’s Déjà vu – all over again.
Maybe it’s a good thing. Although the lenders were made out to be the bad guys, they are now being looked to for correction.
With the myriad of lending products now available, lenders can offer consumers more ways to finance their homes. They can educate borrowers on the risks, rewards, and responsibilities of homeownership; while seeking more ways to qualify more borrowers. That’s good for everyone.
This time around, we need to all learn from our mistakes. Lenders need to perform the necessary due diligence on all their loan applicants to ensure they fully qualify with the ability to repay. Borrowers need to fully understand and accept not only the risks and responsibilities of owning a home, but what it takes to qualify, afford, and maintain their home.
Looks as though it’s time for the lenders to come to the rescue, again…