Could mortgage credit shifts spark another 2008-style housing crash? A new Fox News article revealed the latest warnings and potential results of changes in credit score rules.
A coalition of advocacy groups is urging the Trump administration’s housing regulator to proceed carefully when it comes to altering mortgage credit score rules, as they caution that such changes could increase the likelihood of another taxpayer-funded housing bailout.
Some 35 advocacy groups outlined problems to address as the Trump administration seeks to improve home affordability across the country in correspondence with Bill Pulte, who manages the Federal Housing Finance Agency (FHFA).
In the letter, the groups wrote:
“Dear Director Pulte,
We write today to commend you and President Trump in your efforts to responsibly increase homeownership in America. Owning a home is to millions of families at the heart of the American Dream. They should be able to fulfill that aspiration when they are financially prepared to do so. We also recognize the importance of protecting taxpayers from unwanted, coercive bailouts.
Too often in the past, families not yet ready to become homeowners have been pushed into it by government regulatory, fiscal, and monetary policies. The result was the 2008 financial crisis, largely driven by many bad mortgages failing at once. These defaults triggered a cascade of events that eventually led to multiple taxpayer bailouts. We are sure you agree that this crisis should never happen again. This risk is particularly acute now, as recent data indicates that mortgage delinquencies are trending upward. That’s why we believe your mortgage credit score initiative carries such importance. We urge you to exercise the utmost caution as you proceed. It is vital that any policies you implement protect taxpayers from the threat of housing crisis-style bailouts in the $12 trillion U.S. mortgage market. Below, we have outlined several areas that we believe are necessary to address.”
Breaking Down the Three Points
- Rolling Out of Competing Credit Score Models
The administration’s proposal allowing lenders to choose between traditional and new credit score models must be approached with caution. The group cautioned that changes lacking proper design could complicate mortgage lending, distort pricing, and undermine the financial stability of Fannie Mae and Freddie Mac.
- Concurrent Credit Score Model Availability
The advocacy group stated that all new credit score models should be introduced simultaneously, cautioning that a staggered rollout could lead to increased costs for taxpayers, lenders, and borrowers, as well as complicate accurate assessments of mortgage risk.
- Release of Validation & Approval Data
The group also requested that the agency make public data used to assess new credit score models and that had not been disclosed before, arguing that increased transparency would assist lenders and other stakeholders in adapting to the new system.
Further, the group cautioned that prior administrations hastily implemented policies that forced ill-equipped borrowers into homeownership, leading to widespread mortgage defaults.
The advocacy groups highlighted the widespread defaults that “triggered a cascade of events that eventually led to multiple taxpayer bailouts.”
“Too often in the past, families not yet ready to become homeowners have been pushed into it by government regulatory, fiscal and monetary policies. The result was the 2008 financial crisis, largely driven by many bad mortgages failing at once,” the group wrote. “We are sure you agree that this crisis should never happen again. This risk is particularly acute now, as recent data indicate that mortgage delinquencies are trending upward.”
To read the full letter, click here.
