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The government, the agencies, consumer groups, and trade organizations are all looking for more ways to increase homeownership.
The homeownership rate has hit a wall and seems to be stagnant at its lowest levels in the past 50 years.
In part, this is due to fewer homes now on the market for sale, with even fewer in the ‘affordable’ category; homes for low to moderate income homebuyers.
How can we increase homeownership? We’ve tried lower down payments, easing of credit standards, and special loan programs. These programs help but are not the complete answer.
These don’t seem to be enough. So, what’s next? Many believe it’s a new credit scoring model to replace the outdated FICO score. A score developed back the late 1990’s. Maybe…
Many are pushing to replace the current FICO score with a new vantage score which was developed recently by the 3 credit repositories.
Ironically, FICO does offer an updated scoring model but Fannie and Freddie don’t have it, or Vantage’s, programmed into their ‘black boxes’.
FHFA says they may look at the new scoring models but not until mid-2019. They have other things on their plate like coming out from under government conservatorship and developing a new securitization platform to issue a single MBS. Sounds like important stuff.
What’s more important?
According to several trade groups, including the Mortgage Bankers Association and National Association of Realtors, along with consumer and civil rights groups, such as the National Urban League and National Community Reinvestment Coalition, the agency’s review of alternative scoring methods has already dragged on for three years. They believe it’s time for a change.
As far as lenders are concerned, anything that may help to increase home ownership is good. It increases lending opportunities. But, this must be done right.
As we well know, if anything goes wrong, it’s the usually the lender and the consumer who end up paying the bigger price.
On the other hand, will new scoring models really make that big of a difference?
Proponents say it will increase the pool of potential consumers who may qualify for a loan by increasing the information available to score their credit profile. It will add things like information on rental and utility payment history.
But, that is only if this information is reported accurately and timely, and it’s positive. Will it?
Many in the low to moderate income range now pay rent to private landlords or small rental agencies. These entities would need to have the capability to report the rental history on a regular basis. Will they? Can they?
On the other hand, by reporting a poor payment schedule they run the risk of having their tenant declined for a loan. That means they stay as a slow paying renter.
That may be an incentive to not report so accurately, or maybe not at all. Not that any self-respecting landlord would do that. Would they?
If the new credit scoring is successful, that would put more consumers in the market to buy a home. That’s great.
Unfortunately, there presently aren’t enough homes available to purchase. We’re gonna need more homes at the affordable range for these new buyers.
The low rates won’t last forever, although they’re hanging around. A better credit scoring model, the new programs, and low down payment loans will surely help, but people need homes they can afford to buy and maintain. Where will these come from?
Affordability can be achieved by reducing home prices but that will hurt those who already own and they may decide not to sell, again decreasing supply.
The best thing is to improve the consumer’s buying power. That can be done with the aid of the better scoring models, if everything gets reported accurately, coupled with better jobs and wage growth.
It’s not better scoring models, or low down payment loans with special features that will ultimately increase homeownership. These will surely help.
But, the real answer is to put people in a better position to own and maintain a home. That comes from more jobs and a better economy.
Consumer and trade groups should be clamoring for that!
