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Week of 6.27.08

Subprime Solution?

A massive foreclosure rescue bill cleared a key Senate test this week. It would allow the Federal Housing Administration to back $300 billion in new, cheaper home loans for an estimated 400,000 distressed borrowers.

As Congress debates how to best address the subprime mortgage debacle, NOW asks: Are quick-turnaround mortgages to customers with low credit scores always too good to be true? The answer, according to one enterprising entrepreneur, is a resounding NO, and he has some success to back it up.

This week NOW on PBS takes a look at the non-profit organization Just Price Solutions and the man behind it, Brian Cosgrove. 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. Cosgrove's goal was to help the millions of Americans with lower incomes purchase a home without being caught in a "subprime" nightmare.

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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."

This is part of NOW's continuing segment on social entrepreneurs and their life-sustaining innovations called Enterprising Ideas.

More From NOW:

In Your State: Housing Help

McCain and Obama on Predatory Lending

Help for Homeowners: Tips on Avoiding a Mortgage Nightmare

The Housing Crash Recession: How Did We Get Here?

Related Links:

Nightly Business Report: California Lending

NPR: Marketplace: Nonprofit Gets Around Subprimes

New York Times: Approval Is Near for Bill to Help U.S. Homeowners

Just Price Solutions


Neighborhood Housing Services of America: R-Home Initiative

NeighborWorks America

Center for Responsible Lending: Analysis of HR 3915 Mortgage Reform and Anti-Predatory Lending Act

U.S. Senate Committee on Banking, Housing, and Urban Affairs: Dodd, Shelby Announce Housing Bill