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March 29 2013

Dignity Mortgages Are No Leftist Scheme—They're A Mainstream Housing Product

Originally published by Investors Business Daily on Investors.com 
by John Hope Bryant

Investor's Business Daily, in its article of Feb. 25, 2013, "Dignity Mortgages': Welfare By Another Name," is a surprisingly fictitious attack on a concept designed to bolster the economy and help promote a responsible ownership society.

The basic contention of the article is that the Dignity Mortgage "is the left's latest scheme to make amends for its disastrous experiment to socialize mortgages."

Apparently, the authors are unaware that most of the concepts in the Dignity Mortgage have already been adopted by major well-respected financial institutions that believe originating loans to middle-income families who are financially literate is a sound business practice.

For example, one of the top three home originators has a well-performing mortgage product that requires just a 3% down payment, available to low-moderate-income families, or any family residing in a low-moderate-income census track. And, there is no minimum credit score required.

In contrast, the Dignity Mortgage is seemingly far more conservative, since it requires three times as large a minimum down payment (10%) and requires a minimum credit score of 620. It's worth noting that the Dignity Mortgage also evidently meets the new Consumer Financial Protection Bureau's new qualified mortgage rules.

Although IBD appears to believe that the vast majority of the beneficiaries of the Dignity Mortgage would be high-risk minorities, it should be noted that the vast majority of those most vulnerable to predatory practices in the recent past were white families.

Over the next few months, we expect many financial institutions to develop their own versions of the Dignity Mortgage that help promote an ownership society and that could provide up to one million additional well-informed and responsible homeowners per year.

And this is something that the nation has to do. It's not optional, given that today, unless you have an 800 credit score and a 30% down payment, most people today (read mainstream) cannot actually get a loan. It's not about so-called poor people, but all people.

Sadly, many other comments in the IBD piece are equally off the mark or grossly inaccurate.

For example, IBD opposes our 10% minimum down payment (which is also three times higher than the minimum at FHA), saying that "inner-city housing groups could front them the money" at an average down payment of $25,000 and one million families.

To do so would require inner-city housing groups to have $25 billion a year available, every year, for down payments.

Any examination of the very modest budgets of inner-city groups would show the absurdity of such an argument. Twenty-five billion dollars is probably close to a thousand times more than the total net assets of these nonprofits.

Similarly, IBD accuses the co-developer of the Dignity Mortgage, Robert Gnaizda, founder of the Greenlining Institute in 1971 and former general counsel of the Greenlining Institute, and I of having "redistributionist agendas."

This is apparently based on the present location of the Greenlining Institute in Berkeley, Calif., rather than any specific facts.

For example, Greenlining's Gnaizda and Operation HOPE in 2004 and 2005 brought the 15 largest banks together to try to develop a plan to stop irresponsible subprime lending and follow up with specific complaints before then-Federal Reserve Chairman Alan Greenspan.

See, for example, our op-eds in the American Banker of May 13, 2005, "ARMs Race Could Set Off a Wave of Foreclosures," and July 20, 2004, "How Big Players Can Protect Public in Coming ARMs Race."

The IBD article blames us, not Countrywide or New Century Financial and other subprime lenders, for the collapse of the housing market.

I don't think that privately and publicly blowing the whistle against subprime lending nine years ago and now proposing a viable option that other financial institutions are already engaged in demonstrates that we favor a "redistributional society" or are, as IBD contends, "a far-left fringe radical group."

Apparently, one of the other reasons for the article is that "Bryant meanwhile is a major Obama supporter." It's true that I work with the Obama administration and am chairman of the Subcommittee on the Underserved and Community Empowerment for the President's Advisory Council on Financial Capability.

But what the article fails to mention is that I worked at least as closely on financial products with former President George W. Bush, and had a far closer and more frequent relationship with former President Bill Clinton than I do with President Barack Obama.

Lastly, this attack on the middle class ends with a comment that may speak for itself about the possible bias of this article. It states "they make sure that this new class of superdeadbeat applicant gets financial counseling."

Operation HOPE is able to actually help clients raise credit scores 120 points (on average) over an 18 month period, through our HUD approved credit counseling. Moving an individual from a 550 credit score to say a 670 credit score, literally changes people's lives.

Since more than 70% of Americans of every race live from paycheck to paycheck, I am quite proud of Operation HOPE's efforts to provide financial counseling. If financial counseling had been a viable option a decade ago, there might not have been a foreclosure crisis.

• Bryant is founder, chairman and CEO of Operation HOPE and the Bryant Group Cos.