From the New York Times, February 26, 2014:
In many ways, the New York Times article demonstrates why NACA’s claim that “The NACA Standard should be the National Standard” is more than just a slogan when it comes to lending. During the housing bubble and its aftermath, the mortgage industry performed a nearly complete about face and went from a feast to famine mentality.
Prior to the Great Recession, lenders would give virtually anyone a mortgage loan regardless of their present financial status or ability to repay, and no safeguards were in place to ensure that the loan was genuinely affordable for the borrower. This resulted in millions of loans with predatory terms that were set up for failure from the very beginning. Lenders took advantage of the eager homebuyers’ naiveté and willingness to trust the “professional” on the other side of the desk to put them into a loan that would supposedly give them their opportunity to realize their piece of the American Dream. After the bubble burst, those same borrowers, even if their own financial picture had not changed with the advent of the Great Recession, were turned away cold.
During the same period, the NACA Purchase Program remained consistent in its underwriting policies and practices. The results demonstrated without any doubt that NACA’s program does not support sub-prime lending, but in fact eliminates the need for it, by educating and coaching its members toward qualifying as and then becoming prime borrowers. Using unwavering guidelines for counseling its members, NACA has remained consistent in the flow of its lending before, during and after the housing bubble instead of the flood-then-drought turmoil the lenders created for themselves. NACA’s consistency in its standards opened the door for tens of thousands of Americans who would otherwise fall into subprime traps or be denied homeownership completely.
Perhaps more importantly the collapse of the housing bubble actually demonstrated the stability of the NACA program and the reliability of low to middle income homeowners when they are given a fair and genuinely affordable home loan. The same study by Promontory Financial Group referred to in the article also pointed out that while post bubble delinquency and foreclosure rates were skyrocketing, the volume of past due NACA loans actually DECREASED, even though it already was less than one-third of the national average.
The simple, undeniable fact is that the NACA Purchase Program proves beyond any doubt that common sense full-document underwriting standards and not over-restrictive government regulation such as the CFPB’s Qualified Mortgage Rules reduce the risk of default and create stable loans. Such standards not only create a stable expansion of home ownership but are profitable for lenders as well.
Thank you to the New York Times for providing a window for the nation to see how NACA’s Purchase Program has shown that not only could the housing bubble and the Great Recession could have been avoided completely, but how the average hard-working American is far more reliable than financial institutions have given them credit for when given the proper education and guidance.
Our only suggestion to the Times is that our objective is not to revive “the hopes of subprime borrowers”, but to demonstrate that subprime lending is unnecessary when borrowers, regardless of income level or credit history, enter the mortgage marketplace with the knowledge and focus needed to become responsible homeowners.