Now Obama Bank Regulators Scheming To Degrade Mortgage Credit Scoring

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01/15/2016 06:59 PM E

Subprime 2.0: In an orchestrated assault on the credit standards underpinning mortgages, no fewer than four Obama agencies have gone to war against FICO. If politicians don't want another bank crisis, they'll stop the attack.

Home loan approvals hinge on FICO credit scores. But the Obama regime views FICO scoring as too strict, cutting off millions of low-income minorities and immigrants from mortgages. So it's pressuring Fannie and Freddie, which control 90% of the mortgage market and set the underwriting standards for the entire mortgage industry, to abandon FICO for a softer standard in evaluating credit risk.

Obama's regulators look favorably on "nontraditional credit" like rent, utility payments and other factors that, studies show, have little value in predicting default risk.

The administration's goal is to inflate credit grades by the end of 2016 and socially promote an estimated 50 million deadbeats and unbanked, unscorable immigrants from the rental market to the mortgage market.

The scheme, of course, will inject a massive new risk into the financial system and beckon another crisis.

But the affordable-housing zealots at the Federal Housing Finance Agency, HUD, the Federal Housing Administration and the Justice Department don't care. They're bent on expanding "the credit box," which has shrunk since the last housing bust they caused, and the only way to do that is to inflate credit scores.

FHFA chief Mel Watt, the former Democrat congressman who before the crisis demanded Fannie and Freddie back loans for welfare recipients in his district, has instructed Fannie and Freddie, the failed mortgage giants now under his control, to come up with "alternative credit scoring models." They're expected to make the transition sometime this quarter.

The hope is that the new scoring regime will inflate scores by as much as 100 basis points, thereby qualifying millions of low-income African-Americans with subprime credit and Hispanic immigrants with thin credit for prime home loans.

This is coming at a time when Fannie is launching a subprime mortgage product called HomeReady that caters to immigrants with weak credit and limited income. The new loan lets borrowers for the first time bundle income from roommates and relatives to meet qualifications for income. They have to put only 3% down and can use gifts from nonprofit groups to subsidize their down payments.

Before the crisis, your income had to be your own.

Now, as a renter, you can get a conventional home loan backed by Fannie by claiming others' income.

You don't have to bring much financial wherewithal to the table. You can even live in government-subsidized housing. Just as long as you round up enough income earners and pool finances to help meet a minimum debt-to-income ratio of 45%-50%.

It's all part of a government campaign to ease access to home loans for Hispanic immigrants who tend to live in groups and pool finances. The National Association of Hispanic Real Estate Professionals, a liberal trade group, is praising the move, arguing it will bring into the home market tens of thousands of Hispanic families who have been "skipped over" by stingy (meaning prudent and responsible) lenders .

"It's very encouraging," NAHREP Chief Executive Gary Acosta said. "It demonstrates that Fannie has done a lot of work on the issue of identifying ways to qualify more people."

NAHREP is also lobbying for watered-down credit scores. Most disconcerting, it's found an ally in Ed Royce, the House banking committee Republican who takes money from lenders operating in his Orange County, Calif., district that has many Hispanics. He's co-sponsoring a bill pushing Fannie and Freddie to adopt alternative credit scores and approve more homebuyers.

If the last crisis didn't stop this easy lending madness, what will?

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