The housing market has been on the dumps for two years now and solutions being implemented do not seem to work. Different analysts, economists, and other insiders are suggesting ways to help the market on its way to recovery. Sometimes, the most insane ideas come afloat but they do not necessarily have to be dismissed – as crazy as the idea may sound, it just might work.

Consider this one thought that has been bugging many people for quite some time: why do banks insist on keeping their underwriting standards regarding home mortgages when opening mortgages to non-prime borrowers just might be what the market needs? Most banks and mortgage lenders have held back on doing this because mortgage rates and their profitability margins remain low that lending to a non-AAA+ credit-worthy consumer may be too high of a risk. The implicit guarantee from Fannie Mae or Freddie Mac taken when making mortgage lending semi-palatable adds to this risk.

But suggesting that banks and mortgage lenders open their business to non-prime consumers does not necessarily mean going back to 2003 to 2007’s “no job, no income, no assets” requirements that eventually led to the housing market crash in 2008. The suggestion emphasizes that banks and mortgage lenders still place a huge importance on credit, income, and assets as they are the substantive components of mortgage qualification – only apply a more logical and flexible underwriting criteria.

When talks of foreclosures and borrower defaults surface, it is usually not mentioned that prime borrowers default as readily as non-prime borrowers and that there is a huge number of prime borrowers that pay their mortgages in a timely fashion. Someone who has worked on residential mortgage-backed securities can attest that FICO scores and loan-to-value ratios are not the major reasons for a borrower to default. This is the reason behind the rally to return non-prime borrowers into the mortgage market.

Rates also need not be kept artificially low as this – coupled with the tax incentive – has proven ineffective in targeting the root cause of the housing problem. Mortgage rates need to be kept at 300 to 400 basis points (3 to 4%) higher than what the market has today. There are, indeed, a lot of consumers who can afford to pay mortgages with these rates but the sad fact is that they do not qualify for anything because of the current underwriting guidelines.

The need to loosen up the underwriting guidelines is brought by the prediction that, despite the foreclosure fraud, more and more foreclosed homes are going to hit the market. With supply as bloated as it is, this bids bad things for the economy as a whole. It is necessary to increase investor liquidity and credit to prevent the market from an influx of distressed properties – and one way of doing this is by allowing non-prime consumers mortgages.

The housing market has learned its lesson. This is enough to go back to old ways without fear of another crash: increased awareness and transparency will prevent that from happening.