Expanding the Pool of Eligible Homeowners: Common Sense Underwriting Needed
by Jim Russell
Posted 

It seems our economy is unable to promote a significant level of consumer spending without some sort of Federal Assistance. 

Given that this is an election year where the outcome has the potential to be especially significant, it is reasonable to anticipate that lawmakers returning to Washington after their Labor Day recess will be motivated to enact legislation to stimulate economic activity.

One idea being circulated is to re-authorize the recently expired Homebuyer Tax Credits.  While that may seem like a step in the right direction, it is not. In fact, just talking about another homebuyer tax credit could slow sales in the here and now as consumers put off purchase plans in hopes they too will be able to benefit from such incentives.

More importantly, we must stop attempting to apply short term band-aids to wounds that require invasive repairs. We should be looking at ways to expand the pool of eligible borrowers without re-entering the high risk lending of the sub-prime type.

The first step in the right direction would be to have the two GSE’s (Fannie and Freddie), the Veterans Administration and FHA discard the FICO score as any indication of credit worthiness.  Then establish true, common sense credit underwriting as the real test of the borrower's ability to stay current on debt repayments.

Common sense means asking questions like: Does the borrower have sufficient residual income after all payments for housing, credit cards, utilities, taxes, and necessities are made to provide for their family’s needs?   Does the borrower have adequate reserves to cover their payments in the event they experience an unexpected loss of income or increase in liabilities?

Proper credit counseling is also a must as it provides vital training for first time home buyers as well as those families returning to the market after having lost their home.

Tax credits, secret codes for credit scores, and low mortgage rates are not the solution to our problems.