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Subprime Solution?

Project Name: Just Price Solutions
Challenge: Hard-working, bill-paying Americans with low to moderate incomes face difficulty fulfilling their dreams of owning a home given their limited credit histories.
Solution: An innovative mortgage program that easily evaluates and verifies a borrowers' creditworthiness using alternate forms of payment history, such as rent and utility bills.

The program was the brainchild of Former Federal Reserve Governor Ned Gramlich, who had warned Alan Greenspan that "subprime" lenders were dangerous for the American economy. When he felt Greenspan ignored those warnings, Gramlich thought up a new lending program for low income borrowers.

To get it started, he sat down with Brian Cosgrove, a pioneer of online banking. Ned Gramlich asked Cosgrove a question that changed his life: what are you doing to help others who are less fortunate?

Cosgrove's goal was to help the millions of Americans with lower incomes purchase a home without being caught in a "subprime" nightmare. Cosgrove identified a problem: many low or moderate income borrowers were getting steered into subprime scams because they had low credit scores. But these scores were often low because the home buyers simply didn't take out enough loans or credit cards.

So Cosgrove and his team created an online software application to measure creditworthiness differently: their track record of paying regular bills, like rent and utilities. By making it cheaper and easier to analyze creditworthiness, Just Price Solutions helps banks offer affordable mortgages to people who would otherwise be forced to pay high interest rates.

The organization has received financial backing from Fannie Mae, Citibank and State Farm Insurance, and has developed a related innovation to assist people facing foreclosure in their homes.

Cosgrove says their success is due in part to their community-focused approach. "We're connected with them. We have people back in the neighborhoods that know them. We've involved municipalities in the solutions, we've involved the non-profits, sometimes we've involved the employers. It just produces a community," Cosgrove tells NOW.

But not everyone's a fan of pushing homeownership so widely. Economist Dean Baker says homeownership is just too costly for many families these days. "When we're talking about low, moderate income people, they don't have a lot of money to throw around. So if we're talking about spending more money on housing costs than necessary, that's coming at the expense of health care for their kids, of getting good food, of child care."

But the way Brian Cosgrove see it, America needs new homebuyers now more than ever. "When a community breaks, it's just as important for those of us who are lending in there to step in and say, look, I don't want all the capital to come flying out of here. Let me find another borrower and bring them into the community."

Enterprising Ideas is a project of NOW on PBS, with support from:

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