By Wyatt Kash. America has a rich legacy of individuals and institutions dedicated to the enrichment of families and neighborhoods through the benefits of homeownership. Yet despite noteworthy gains, closing the homeownership gap is proving to be increasingly difficult.

Certainly the growing shortage of affordable housing is part of the problem. And it is a real one for more than 14 million American households who wake up each morning knowing that more than half their income pays for housing or who must otherwise endure living in substandard units.

Helping more Americans find financial solutions for a basic home has never been so important. What will it take to at least narrow the gap?

One answer was offered on Capital Hill just last month. There, a coalition of nine national housing and lending organizations proposed that Congress pass a $2.4 billion homeownership tax credit plan. The National Housing Conferencecoalition ( said its homeownership plan would produce as many as 50,000 new and rehabilitated homes annually, contribute $2 billion in private equity for new investment, and create 122,000 jobs. That will certainly help.

But perhaps a more far reaching solution was proposed in an auditorium a few blocks from -- and a few days prior to -- the meeting on Capital Hill, by Angelo Mozilo, chairman and CEO of Countrywide Financial Corp. Speaking at a private gathering of housing executives hosted by the Joint Center for Housing Studies and the NAHB's National Housing Endowment arm, Mozilo identified three underlying structural obstacles that can and need to be addressed if we, as a nation, are to make continued progress in closing the homeownership gap.

Photo: Katherine Lambert

The first is the trap door in today's underwriting process. Too many borrowers fall through the automated approval process into a "Lord of the Rings" world where fallible humans decide a borrower's fate -- and too often are turned down. The second is the runaway train of state and local regulatory initiatives to curb lending abuses. Some 145 predatory lending bills were introduced across the country in the past two years. Well intentioned as they may be, collectively they are shackling lenders with confusing, sometimes contradictory regulations that ultimately limit lending to those in need.

And third is what Mozilo says he believes is a myopic focus as a nation on delinquency rates as a predictor of foreclosures. Less than four percent of sub-prime borrowers lose their homes to foreclosures, argues Mozilo, meaning that 96 percent of sub-prime borrowers do keep their homes.

What to do? Mozilo proposes a few sound ideas. The volume of borrowers that are manually qualified each year suggests the automated approval floor is too high or flawed -- especially given the risk management tools available today. Fixing the thresholds will help. But Mozilo's own lending data convinces him of the need to fix a still-imperfect credit rating system and how it is used. It must "do more than just approve the 'cream of the crop' by creating a system that says 'no' only to those deemed unwilling to make their mortgage payments," he argues.

As for predatory lending regulations, one need only look at the state of Georgia to conclude how regulatory complexity has led even Freddie Mac and Fannie Mae to shy away from mortgage purchase activities there.

The simple solution: seek preemptive Federal legislation that "clearly defines predatory lending by addressing the real, rather than the imagined abuses" to simplify regulations.

Refocusing the industry's view on delinquency rates may paradoxically be both the easiest and hardest remedy of all. Risk is a mindset. But Mozilo argues forcefully for the need to look for "every reason to approve applicants rather than the reasons to reject them. We must focus on the majority that succeed, rather than be obsessed with the few that fail."

Tax credits and more affordable housing will help. But giving prospective home buyers more individual credit than their financial credit scores might warrant -- and eliminating down payment and complicated closing costs -- would go a long way toward giving more Americans the means to buy that first home.

Wyatt Kash