May 20 2014
Vicki E. Alger
Last week the U.S. Department of Housing and Urban Development unveiled its latest and greatest plan for swelling the ranks of American homeowners called Blueprint for Access. According to the plan:
Currently, there are 13 million people with credit scores ranging from 580 to 680. Shutting these consumers out of the market hurts American families and undermines our efforts to build more stable communities, create pathways to the middle class, and increase homeownership opportunities for minority and low-wealth borrowers.
Keep in mind, a credit rating of 550 or lower indicates poor credit, while a score between 551 and 620 is considered sub-prime. Only credit scores of 621 to 680 are considered acceptable. As Investors’ Business Daily explains:
We've seen this movie before and know how it ends. Badly. … The easy credit campaign, headed by HUD chief and Clinton retread Shawn Donovan, echoes his former boss' ill-fated National Homeownership Strategy. In 1995, Clinton launched an ambitious plan to bring 8 million first-time buyers, mostly minorities, into the housing system: ‘There are millions of people who believe home ownership is out of reach. A down payment is still out of reach. They are locked out by rigid restrictions or by a homebuying system just too difficult. .. . We'll make home ownership more accessible.’
So he ordered HUD, as well as the Treasury and Justice Departments, to crack down on lenders hewing to ‘rigid restrictions,’ aka prudent mortgage underwriting standards. Two years later, the subprime housing bubble started. Ten years later, the bubble burst.
Now his protégé, Donovan, is doubling down on those pre-crisis mistakes.
Specifically, Donovan told a gathering of the National Association of Realtors that these days getting credit is “too hard,” and that “People deserve access to credit. People deserve the chance to buy a home. …It's up to us to make it happen ... to expand the circle of opportunity for more families.”
Far from creating a “circle of opportunity,” making credit a de facto entitlement rather than something that’s earned perpetuates a cycle of dysfunction—as we well know. IBD went on to note that Donovan’s easy credit plan is:
…making it easier for weak buyers to get FHA loans. All they have to do is get credit counseling, even though a 2008 study found that had no impact on default rates. All this sounds eerily familiar. Call it subprime 2.0. Shocking? Not really. Not when the real subprime villains, and we count Donovan among them, were never held accountable for their original reckless actions.
Financial decisions should be made on facts and risk-assessment—not politics. This latest HUD policy is no different than its own previous policies, or federal student loan policies that hand out taxpayer subsidies with little oversight or accountability. Given HUD’s abysmal track record, we should be encouraging policies that let hard-working Americans keep more of the money they earn, save that money and keep the interest, and get loans directly from private financial organizations that best meet their individual needs.
Homeownership done wrong can turn out to be a nightmare instead of a dream. Too often, once we make dreams entitlement programs, nightmares are all we’re left with.