Is this a great country or what?

A story over last weekend in the New York Times by Ron Lieber (03/14/2009) reported new programs starting out on the West Coast to make home loans available to those who have lost their homes to foreclosure.

The amount of damage to a credit score caused by foreclosure, deed in lieu or a short sale during 2008 and 2009 may be mitigated by the slower economic times, say some credit and legal experts.FICO may have to adjust its credit scores to lessen the impact of a foreclosure in the last two years, says Todd J. Zywicki, a professor of law at George Mason University.''It just seems obvious that a foreclosure in 2008 or 2009 doesn't have as much information value as a foreclosure five years ago,'' he says. ''To the extent that foreclosure doesn't predict future behavior as much as it did in the past, you'd expect that the FICO algorithm would change to adjust for that.''



One of the country’s largest credit unions Golden 1 has already figured out a way to lend to people with a foreclosure on their record by offering a mortgage repair loan specifically for those who have lost a home to foreclosure and who want to buy a new one. BECU, another large credit union based in Washington State, is about to present a program to fellow lenders, ''How to Lend to the Newly Credit Impaired.” Isn’t that a catchy phrase?

This is going to be a vexing problem all across the United States as lots of basically good people, who went through a bad patch and lost their homes now try to get back to a more normal life and buy a new home. One can only hope, of course, that the banks do a much better job of making sure that these people can afford the homes that they now want to buy and don’t saddle them with new toxic loans that will reset in a year or two and cause a second wave of foreclosures.

I’m confident that better controls will be in place in the financial markets to watch how these new loans are packaged and monetized into the secondary market. One can only hope that these people have learned enough from their unfortunate experience to better manage their credit in the future.

We’ll be alright until we hear Billy Mays screaming on the TV – “Had a foreclosure? No problem. Have no job and no money? No problem, get your loan here.” I think that’s what happened last time, isn’t it?

I wonder if any of these programs will allow the borrowers to buy a foreclosed home with no money down? They’d almost have to call that the “Irony Loan” wouldn’t they?