Editor’s Note: A (shorter and less conversational) version of this post appeared earlier today in the San Antonio Express News.
An official from the Department of Housing and Urban Development (HUD) responded last week to disagree with my article two weeks ago in which I claimed that Secretary Julian Castro supported subprime lending, in his speech about HUD priorities September 16th.
We had a lovely chat.
What Castro said
What Castro actually said in his speech is the following:
“According to the Urban Institute, the average credit score for loans sold to GSEs [*which stands for ‘government sponsored entities,’ shorthand for Fannie Mae, Freddie Mac, and Federal home loan banks] this year is roughly 750. Currently, there are 13 million people with credit scores ranging from 580 to 680. Many of them are ready to own, but are being left out in the cold. The truth is that the dream of homeownership is out of reach for too many Americans. This has to change.â€
I interpreted ‘this has to change’ to mean he advocated greater subprime lending. Castro specifically included credit scores that meet the ‘subprime’ definition, even though he did not use the phrase ‘subprime lending,’ probably because after the 2008 crisis ‘subprime‘ became a dirty word.
Definition of subprime
Banks sort mortgage borrowers according to their FICO scores, a personal-credit score based on past borrower behavior.
A 720 score and above is considered “Prime.†A 680 FICO and below is considered “Subprime.†To fill out the middle part of the scale, a 680 to 720 score is generally considered “Alt-A,†an in-between designation of credit worthiness.
Reasonable people can quibble on the exact FICO boundaries between Prime, Alt-A, and Sub-Prime, and banks can make their own determinations of the ranges for their own lending purposes, but 680 and 720 are the traditional boundaries separating the three segments of the mortgage market.
