The American dream of home ownership has lately become a nightmare. There’s no disputing consumers are facing the most unfavorable housing market in forty years. The combination of skyrocketing home prices with the Federal Reserve’s six interest rate hikes in 2022 has unleashed a pandemic of sticker shock. And as inflated costs continue to wallop prospective homebuyers, the knockout blow is coming from the absolute dearth of available homes on the market, with inventory roughly 40 percent lower than it was in early 2020. From first-time home buyers to retirees, regardless of income or savings, millions are finding there are just no suitable houses available.
The volatility and unpredictability of the past few years has raised concerns by some that we may be heading toward a housing crash. The Federal Reserve of Dallas raised eyebrows recently commenting about a “brewing U.S. housing bubble,” noting that housing prices have become unhinged from the fundamentals of supply and demand. Given the housing market’s close correlation to the overall health of Americans' financial well-being, an abundance of caution is in order as we look earnestly for the market to stabilize.
Unfortunately, companies such as VantageScore, the creation of credit reporting behemoths Experian, Equifax, and TransUnion, along with others are making outlandish and misleading claims to consumers that thoroughly disregard the stark reality regarding the lack of available housing. They and their cohorts in the real estate industry are making the ridiculous assertion that VantageScore’s inclusion in all loan applications underwritten by Fannie Mae and Freddie Mac will somehow throw the door wide open for millions more Americans to gain access to a mortgage.
The fact is it won’t. Estimates from Freddie Mac put America’s current housing shortage at nearly four million homes, meanwhile mortgage applications are the lowest they have been in 25 years. Supply is dwindling, new home construction is lagging, and many owners currently paying under three percent on their mortgage are staying put instead of shopping for a new home. Mathematically, there is simply no possible way a new and unproven credit scoring model can somehow provide access to a mortgage for millions of additional borrowers.
Despite their abandonment of basic arithmetic, VantageScore's aggressive marketing campaign continues to tout that 10.7 million "newly scorable" people can be added to the pool of potential home buyers. CEO Silvio Tavares proclaimed his company, “…[W]ill enable millions more Americans to have access to mortgages because of VantageScore’s more predictive credit score…” And if you believe that load of hokum, they may throw in some magic beans to sweeten the deal.
The so-called “newly scorable” people are "new" only because they lack experience with credit, otherwise they would already carry a score. A credit scoring model that includes people lacking sufficient history managing credit must be built on comparatively little data and would be less reliable in assessing risk compared to the well-tested and proven single-score model. Dr. Cliff Rossi noted in his recent study that “scores are only as good as the data on which they are built,” and scoring people with insufficient credit history undermines sound underwriting practices, which -- lest we forget -- led to the housing crash of 2008.
By every objective measure, VantageScore is peddling false numbers and unrealistic claims that will do nothing to help the millions of American families desperate for a new home, and their cynical branding as mortgage-providing magicians will only raise false hopes to all within earshot of their marketing baloney. At a time when the housing market is facing so much uncertainty, unrealistic and self-serving assertions of a wider path to home ownership, especially for higher-risk borrowers, will only undermine faith in an already problematic housing market and make the dream of home ownership seem farther out of reach.
