Would-be home-owners with subpar credit histories are getting a second chance through the private sector. Yes, that’s right — it didn’t take a government program to help these disadvantaged buyers. Private investment firms, like Athas Capital Group and New Penn Financial, are extending mortgages to risky debtors in return for higher down payments and higher interest rates.
Although banks have been reluctant to finance home-buyers with low credit scores since the 2008 crisis, investment firms are stepping in to supply loans so that previously unemployed or foreclosed upon people may have a chance of owning a home. Contrary to government-run or sponsored entities like the Federal Housing Administration, Fannie, or Freddie, taxpayers will not be left to foot the bill if these risky home-buyers turn out to live up to their credit histories. Score this as a win for free-market capitalism, as the private sector continues to defy misinformed claims of its inability to assist the disadvantaged while not endangering others.
Ironically, it is government interventions intended to encourage housing market recovery, like the risk-retention rules contained within the Dodd-Frank Act, that actually fulfill the misguided fears of private enterprise. The rules will push creditworthy home-buyers out of the private mortgage market and thereby produce more systemic risk, as those thrown out of the private sector will seek mortgaging options through the government and its sponsored entities (e.g., the FHA, Fannie, and Freddie), for which the taxpayer is ultimately responsible.