THE ANSWER

The Bill which the House rejected on September 29th lacked one extremely important ingredient: changes necessary to avoid the mistakes which precipitated and caused the disaster which this bill seeks to alleviate. During the Carter years there were concerns about redlining, and it was deplored.

(Social activists of those days found sufficient support and supporters to charter and open a bank in New York City to provide mortgage financing to the residents of the lowest income areas of the city. I personally applauded this free enterprise [charitable] attempt to bring home ownership to the inner-city. If I had had more money at the time, I might have deposited some funds into that bank, but the bank folded before that happened.)

Selling someone a home that he [or she] cannot afford does no good to the buyer! In fact, unless someone with plenty of cash is found, those who are financially challenged will need to find low cost or subsidized rental housing. Not everyone is suited to home ownership.

THE AMENDMENT

Money alone cannot solve all of the problems and shortcomings which will continue to plague our economy unless changed.

First: this bill must require all mortgages to be graded according to a standardized scale: (Only solidly verified facts count.)

AAA 50% Down Payment, Annual Earnings of at least 50% of the purchase price of the home, liquid assets of at least 10% of purchase price, and a high credit score.
AA 30% Down Payment, Annual Earnings of at least 30% of the purchase price, and a high credit score.
A 20% Down Payment, Annual Earnings of at least 20% of the purchase price, and a high credit score
B 15% Down Payment, Annual Earnings of least 15% of the purchase price (or average value over three years if considering a refinance), and a good credit score.
C 10% Down Payment, Annual Earnings of at least 12% of the current value of the property, and a good credit score.
D 5% Down Payment, Annual Income of at least 5% of value.
E No Money Down Payment
F Mortgage for more than the cost of the property
**** All of these ratings require appropriate fire / peril insurance !!! ****
G [Give Away], No cost or value demonstrated, No income demonstrated, No credit score.

These scores will be assigned by the underwriter who will be personally and corporately responsible for the veracity of same. His employer / financial institution will be required to repurchase any mortgage which does not conform to these standards provided that such repurchase is demanded within 30 Calendar Days. Resellers and bundlers will also be held responsible not to alter any scores on any of the mortgages as provided by their sources.

This Amendment will reduce the number of mortgages written, but mostly it will reduce the number of doomed mortgages being originated.

To read Commentary on this Amendment, click here.