To reach deeper into the pool of otherwise qualified would-be home buyers, the founder and chairman of the nation's largest independent mortgage company would eliminate downpayments.

And to eliminate what he calls "the enormous and very dangerous gap" between the housing haves and have-nots, Angelo Mozilo of Countrywide Financial also would lower the bar on credit scores.

"The only way we can have a better society," he said at the America's Community Bankers' National Real Estate Lending Conference in Tucson earlier this month, "is to make sure those who don't have a house have the opportunity to get one."

Elaborating on points he made the previous week in Washington, Mozilo labeled downpayments as "nonsense," and said credit score requirements are "still much too high."

He also said it was "wrong" to focus on delinquencies.

Rather than address the 19 percent of those credit-challenged, or "subprime," borrowers who are late, he said, the focus should be on the 81 percent who pay on time. And rather than worry about the 4 percent who lose their homes, concentrate on the 96 percent who won't let their homes go into foreclosure. In Tucson, the outspoken industry leader called on his colleagues to "take a chance on making mistakes rather than foreclose on the opportunity" to put minorities and other underserved families into homes of their own.

"For selfish reasons, we've got to share," Mozilo said. "If we don't, people will take it. We'll never solve any of our societal problems until we take care of" people's housing needs.

The Countrywide chairman said it is "meaningless" to require targeted borrowers to come to the closing table with as much as 10 percent of the purchase price in cash, especially since much of money comes from a relative or some other third party.

"It's often not their money anyway, yet we put them through this torture," Mozilo said.

A downpayment "doesn't help the integrity of the loan at all," he added, explaining that troubled borrowers are often forced into foreclosure because it costs more to sell their places than they will lose in equity by handing the keys back to their lenders.

He also called on Fannie Mae and Freddie Mac, the two secondary market institutions which provide much of the money that direct lenders use to fund their loans, to reach out "much further" by automatically approving more borrowers with lower credit scores.

Scores "must be much lower" before applicants are referred to human underwriters," the industry leader said.

In Washington, Mozilo told the National Housing Endowment that the ownership gap is largely a bi-product of the late start most minority and low-income families are getting on their rise up the housing ladder.

"Home ownership is, as it has so often been proven, a vehicle for accumulating wealth. And that wealth is often used to help the next generation become homeowners," he said.

"In other words, the children of parents who are not homeowners predominantly low-income and minorities begin the quest for home ownership several steps behind the children of home owners."

The Countrywide chairman called eliminating the downpayment requirements for such families one of the "more obvious" solutions to closing the ownership gap.

"Current downpayment requirements...add absolutely no value to the quality of the loan. It is the willingness and the ability of a borrower to make monthly payments that are the determinants of loan quality," he said.

On the issue of credit scores, he said automated underwriting systems such as those used by Fannie Mae and Freddie Mac "kick far too many" would-be borrowers down to a manual approval process, where the applicant is subject to judgement that can be influenced by the level of the borrower's credit score. Mozilo acknowledged that credit scoring is a proven and valuable tool in judging risk. But he said the system is "imperfect."

"We cannot deny that human beings aren't influenced by (credit) scores," he explained. "If we can be influenced by a high credit scores, then it is only logical to assume that we are equally influenced by a low one.

"Therefore, the underwriter, either because he or she views the current system as relatively inflexible or because he or she chooses to err on the side of safety, may decide not to override a system that has been deemed to be an accurate forecast of risk."

Published: February 19, 2003

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