By Henry Cisneros
The national economy continues to be stalled in a pattern of slow growth, as many Americans unfortunately know from personal experience. This is evident in a stubborn unemployment rate, discouraged workers, business challenges, and state and local government revenue shortfalls. Leading economists agree that the housing sector — one of the nation’s principle economic engines — has contributed to the stall. After every national recession in the post-war era, economic recoveries have been led by a housing rebound. After this Great Recession, every important housing indicator has lagged. New housing production, existing home sales, home prices, housing materials manufacturing, and housing-related employment all fell to record lows and have made meager progress since 2008. Considering that housing construction, residential finance, building materials, and household furnishings taken together comprise as much as 15% of GDP in a normal economy, the continuing depression in housing is a major national problem.
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The overhang of foreclosed properties, the specter of pending foreclosures, the surplus inventory of distressed properties, lack of buyer confidence because of employment conditions — all of these are key factors in the ongoing housing stall. However, it’s the unreasonably stringent underwriting standards for mortgages that are currently preventing many creditworthy potential homebuyers from buying homes. This reduces number of families who can purchase from the supply of existing homes, who can spur production of new homes, and who can energize both the housing markets and national GDP growth.
It is clear that undisciplined lending practices were major contributors to the housing crisis, which precipitated the serious recession. However, a range of forces have resulted in an over-correction so severe that lenders are imposing high down payment levels, overly rigid debt-to-income ratios, and increasingly high credit score requirements. The Federal Reserve System noted on this in a recent report: “Continued efforts are needed to find an appropriate balance between prudent lending and appropriate consumer protection, on the one hand, and not unduly restricting mortgage credit, on the other hand.” The availability of responsible home mortgage credit is a pre-condition for reinvigoration of the housing sector and indeed acceleration of the national economy.
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This is why it’s so important to have organisations that work to sustain and enhance the functioning of a strong, credible and trustworthy credit system is of great importance. Expertise is needed to assure the accuracy and transparency of credit assessments and particularly of credit scores. It is essential that we maintain a system of review and interaction that allows consumers to easily access and know their credit status, contest inaccuracies, and secure corrections expeditiously when the facts warrant them. In this era of illicit incursions into private data and identity theft, it is also critical to have systems that prevent unfair damage to consumers life-long credit histories because they have been subjected to illegal acts. In a world where financial record-keeping and personal well-being are electronically, instantaneously, and intensely intertwined, a secure credit system is neither a luxury nor an expendable option; rather it is at the heart of the functioning of our economy.
This reality is abundantly clear in the current sideways drift of our nation’s housing sector. Housing economists estimate that correction of today’s overly stringent lending standards and a return to workable practices pre-2000, before the housing boom, would result in increases in home sales of from 15 to 20 per cent. Such credit corrections would spur major improvements in the performance of the housing sector and contribute immensely to the economic growth which our nation needs to create jobs, raise incomes, and reduce both personal and national debt. A secure and responsible credit system–a network of reliable transactions, of secure records, of fair assessments, and of balanced rights and responsibilities–is a vital component of the modern wiring of a prosperous and just society.
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This story is an Op/Ed contribution that originally appeared on Credit.com and does not represent the views of the company or its affiliates. Henry Cisneros is executive chairman of CityView, which works with urban builders to create homes priced for average families. He is the former Secretary of U.S. Department of Housing and Urban Development under President Clinton, and prior to that he was Mayor of San Antonio. He is the author or editor of several books, including “Independent for Life: Homes and Neighborhoods for an ageing America”released in April 2012.
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