Promoting financial inclusion and racial equity is perhaps the most important social issue facing our country today. A stark reality is that the property gap between white and black families has grown in the six decades since the Fair Housing Act was signed — from 27% in 1960 to 30% in 2017, according to the Urban Institute.
We certainly need to take steps to close this homeownership gap and achieve greater financial inclusion. Perhaps an important step would be to encourage lenders and consumers to take advantage of multiple credit reporting models. Fortunately, Congress has asked the FHFA to consider approving VantageScore alongside FICO for use by GSEs when mortgage credit scores are required.
Allowing VantageScore to compete in the traditional mortgage market can help bridge the racial gap between homeownership and financial wealth by increasing homeownership opportunities for underserved populations.
VantageScore says they can provide a credit score to millions of consumers who can’t get a credit score using the required FICO credit score model. Many of these underserved families may have a credit score of 620 or better, allowing more to be nearly ready to become homeowners. Nothing we could do to improve generational wealth will have more impact than getting more buyers into homeownership as soon as possible.
The rest of those with credit scores below 620 may not be eligible for home ownership immediately. However, they must be prepared for approval by nonprofit property advisers, commonly referred to as advising organizations. Knowing your credit score is key to setting a benchmark when it comes to homeownership readiness. If homebuyers can’t get a score, we’re limited in helping them become eligible for homeownership and ultimate success. Without a credit score, too many people find themselves in the financial underworld having to borrow money from payday lenders, pawnshops or worse.
The FHFA should move quickly to create a system where VantageScore and FICO compete on equal footing. It may not solve all the problems that contribute to our homeownership gap. But at least one problem could be crossed off the list.