Promoting financial inclusion and racial equity is perhaps the most important social issue facing our country today. One stark reality is that the homeownership 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.
Certainly, we must take steps to narrow this gap in homeownership and achieve greater financial inclusion. Perhaps one important step would be to encourage lenders and consumers to take advantage of multiple credit scoring models. Fortunately, Congress has asked the FHFA to consider approving VantageScore alongside FICO for use by the GSE’s when mortgage credit scores are required.
Allowing VantageScore to compete in the mainstream mortgage market may help to close the racial homeownership and financial wealth gap by increasing homeownership opportunities for underserved populations.
VantageScore indicates they can provide a credit score to millions of consumers who cannot get a credit score using the required FICO credit scoring model. Many of these underserved families may have a credit score of 620 or better, allowing more to be nearly ready to achieve homeownership. Nothing we could do to improve generational wealth will be more impactful than ushering more homebuyers to homeownership as soon as possible.
The remainder of those with credit scores under 620 may not be homeownership eligible right away, however, they should be prepared for approval by nonprofit homeownership advisors, commonly known as counseling organizations. Knowing one’s credit score is vital to establishing a benchmark for homeownership preparedness. If homebuyers cannot get a score, we are limited in helping them to become eligible for homeownership and ultimate success. Without a credit score, too many people are left in the financial underworld having to borrow money from pay-day lenders, pawn shops or worse.
FHFA should move quickly to create a system where VantageScore and FICO compete on a level playing field. This might not solve all problems contributing to our homeownership gap. But at least one problem could be crossed off the list.