I don't always agree with Scott Syphax, the CEO of non-profit Nehemiah Corp., but I think he has a fair point this time.
Syphax strongly believes that homeownership is a good way for lower-income families to lift themselves up into the middle class. He's appalled by what he sees as an unjustified backlash against it. Instead of trying to correct the obvious problems with the subprime mortgage mess, he says, pundits are concluding that people with low incomes, minimal savings, and patchy credit histories simply shouldn't be allowed to own homes. That, says Syphax, is going too far. Here's what he said in an interview with me yesterday:
"I am extremely disturbed and concerned about the tenor of the reporting that is going on with regards to the housing market, especially subprime. There is almost a rush to judgment: 'Oh, wow, we’ve made a mistake! We need to save them from themselves by essentially closing the doors of access and decreasing innovation in the marketplace!'"
Syphax says that instead of shutting down the subprime market altogether, society should try to fix it. He said there's good evidence that even seemingly marginal borrowers can succeed in homeownership as long as they get lots of consumer education and counseling. It also helps, he says, if they carry insurance that will cover their mortgage payments for awhile--say, a year--if they suffer a major setback such as a serious illness.
Trouble is, Syphax says, all those things cost money. Borrowers don't want to pay for it. And neither do lenders, because it wipes out their narrow profit margins. (He knows, because Nehemiah tried offering insurance and didn't get many takers.)
One solution, he says, would be a government mandate of education, counseling, and payment insurance for every subprime loan. But he would prefer a more free-market approach involving the rating agencies such as Standard & Poor's (a sister of BusinessWeek in The McGraw-Hill Companies Inc.). He says the agencies should give a higher credit rating for pools of mortgages whose borrowers have gotten education, counseling, and insurance, because they're less likely to suffer defaults. That higher rating would translate back into a lower cost of funds for the lenders, covering the extra expense of the interventions.
Interesting idea, huh? I think so. Now, as I mentioned at the start, I don't particularly like the business Nehemiah is in. The company arranges for the seller of a house to make a gift of the downpayment to the borrower. The seller usually turns around and raises the price of the house by the amount of the gift. I think this is just a way to circumvent downpayments--and it probably helped inflate the housing bubble and exacerbate the foreclosure problem. Not surprisingly, Syphax sees things differently. But that disagreement aside, I think his idea of finding a way to prevent disclosure short of shutting down subprime altogether makes a lot of sense.
By the way, if you want to know more about programs aimed at preventing foreclosure, read this article published this past December by the Federal Reserve Bank of San Francisco.