The Obama administration is urging the financial community to give more mortgages to the segments of the population who are missing out on the budding housing recovery, such as borrowers whose credit was dinged by the recession and young people hoping to become homeowners for the first time. Years of scrutiny and repercussions have made banks skittish about lending at the low end. "If the only people who can get a loan have near-perfect credit and are putting down 25 percent, you're leaving out of the market an entire population of creditworthy folks, which constrains demand and slows the recovery," explains former White House adviser Jim Parrott. At the same time, young people who are forming new households will be forced to rent rather than buy if they cannot qualify for financing. The administration is working with the FHA, Justice Department, and HUD on possible solutions that will give banks more assurance that they will not be held liable if borrowers later default. In addition, there is a push for lenders to be more subjective in their underwriting decisions. Critics warn that the drive for broader lending could pave the way for another housing crisis. American Enterprise Institute fellow Ed Pinto says the move "would open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from."
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