White House to Banks: Loan to Those With So-So Credit

The White House is fighting to make it easier for people with less-than-stellar credit to get home loans, a move insiders say will spur recovery. They're joined by housing advocates who say the improving housing market hasn't reached lower-income and young people. But the plan "would open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from," says a former Fannie Mae boss. Home loans for people with credit scores in the 620 to 680 range (out of 800) were down 90% last year from 2007 levels, reports the Washington Post.

The administration wants nervous banks to lend in conjunction with federally funded programs that insure against default. Officials say banks should be more subjective in determining loan eligibility, taking into account factors like total savings. Banks shouldn't fear legal fallout over defaults, housing officials say. Right now, loans are mainly going to those with high credit scores or big investors. But "if the only people who can get a loan have near-perfect credit and are putting down 25%, you’re leaving out of the market an entire population of creditworthy folks, which constrains demand and slows the recovery," says a former White House adviser. (More housing market stories.)