Obama administration to banks: Why aren’t you making higher-risk loans?

posted at 10:01 am on April 3, 2013 by Ed Morrissey

On one level, it’s almost unbelievable that anyone would ask this less than five years after the housing-bubble crash and the near-wipeout of Western financial institutions.  On another, it’s almost inevitable, given the efforts by the governing class and the media to ignore the central failure in that bubble, which was incentivizing increasingly risky loans with government cash and coercion, which created a false-equity trajectory that nearly ruined us.  If that core cancer gets overlooked, it simply keeps coming back:

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.

President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

Ah yes, the FHA, which has replaced Fannie Mae and Freddie Mac in that government-intervention role.  Fannie and Freddie can’t come out and play, because playing that role in the 1998-2008 bubble bankrupted them both, and taxpayers have had to repeatedly infuse them with bailout cash to keep them from destroying what’s left of the economy.  Without Fannie and Freddie’s intervention, the bubble never would have formed in the first place, a point offered by former Wells Fargo CEO Richard Kovacevich in January:

“If it wasn’t for Fannie and Freddie, [the mortgage crisis] would have been a small problem. Fannie and Freddie and other government agencies guaranteed 70 percent of those [bad] mortgages,” Kovacevich said in a “Squawk Box” interview. He argued that without government-sponsored guarantees, there would not have been any private money willing to buy the toxic loans that have been blamed for the crisis.

“There needs to be a decision that the government will not be in the mortgage business in the sense of a hybrid [like Fannie and Freddie],” Kovacevich said. He did say that if the government wants to be in the home loan business, it should do so through the Federal Housing Administration, which has worked well for a long time.

It used to work well, before the Obama administration turned into Little Fannie.  In November, FHA reported that its capitalization had turned negative — in other words, it had become insolvent.  The Washington Post reported then that its stated position actually underestimated the danger for the FHA.  The push for FHA to become Little Fannie has put it in the same exact position as the other, failed GSEs.  In fact, FHA will likely require a bailout of its own.

Former Fannie Mae exec Ed Pinto, who originally pointed out the failure at FHA, can’t believe the White House wants to race down the same path of collapse less than five years later:

“If that were to come to pass, that 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,” said Ed Pinto, a resident fellow at the American Enterprise Institute and former top executive at mortgage giant Fannie Mae.

This is what happens when one doesn’t learn the correct lessons from the past, even the recent past.

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really bizarre leftist arguments. When leftism fails, they 100 percent of the time blame someone else…often the victim. Leftism is a bizarre cult.

Lets imagine a bank 50 years ago. Happily taking deposits from its consumers and making loans…and making a profit on the delta

Now, if they make too many bad loans, what happens???? Bueller? That’s right, even bueller gets it…you make less profit. So, for all the leftist trolls, banks don’t want to make bad loans!!

Now, introduced hard leftism, GSE guarantees, Mortgage Bankers, Golden State Financial (leftists), Countrywide (Democrats)…and leftist pols and agitators (C and P, Obama) and then add to that a senile Fed chairman…and you get disaster

leftists can’t learn…they are ideologues…religious to a fault. The superstitious and irrational behavior we see in our body politic is the result

r keller on April 3, 2013 at 7:30 PM

o you get the feeling that Obama and his entire staff are”graduates” of the Atlanta school system and they were all just pushed through despite not learning a damn thing about anything.

jaywemm on April 3, 2013 at 10:43 AM

Or possibly illiterate graduates of NYC public schools!

Marco on April 3, 2013 at 7:32 PM

This is more of that multidimensional economic chess that Dog Eater plays, you dolts couldn’t possibly understand so keep your homophobic comments to yourself.

Bishop on April 3, 2013 at 10:05 AM

Fannie Mae and Freddie Mac are out of money, so now it’s the FHA’s turn?

I would have thought multidimensional economic chess would be harder, but you know how us homophobes are….

There Goes The Neighborhood on April 3, 2013 at 9:04 PM

On another, it’s almost inevitable, given the efforts by the governing class and the media to ignore the central failure in that bubble, which was incentivizing increasingly risky loans with government cash and coercion, which created a false-equity trajectory that nearly ruined us.

Who’s partly at fault in this? The GOP for allowing Dems to blame 2008 on Bush for wars and tax cuts and derivatives. The GOP completely rolled over and played dead on this issue. You don’t even get to the high-finance shenanigans if you don’t have an overwhelming pool of toxic mortgages.

By the way, for all the shrill complaints about predatory lending from Democrats, where have all the prosecutions been of those predatory lenders?

BuckeyeSam on April 3, 2013 at 11:17 AM

The ugly truth here is that the GOP rolled over on the mortgage bubble because the Democrats got the Congressional Black Caucus to loudly claim that Republicans were trying to destroy the dream of home ownership for African Americans. This was obvious claptrap, but no GOP politician wanted to be accused of racism, so they caved.

This is a favorite Democrat tactic: to shut down a reasoned opposition by playing identity politics, then accusing any Republican who didn’t instantly cave of being a racist. In this case, the entire nation paid for bad politics.

For their share in the unnecessary mortgage crisis and meltdown, the Democrats were able to blame the Republicans for what they caused.

There Goes The Neighborhood on April 3, 2013 at 9:20 PM

This ticks me off on so many levels. Mainly because working for years in the mortgage industry (yes, sub prime too)the media insisted it was the bad banks doing all the damage, and for the most part they got away with it…

They were the rules and we followed them. We knew it was coming for God’s sake.

shar61 on April 3, 2013 at 10:25 PM

Hey it will only harm the One Percent, right?

Kenosha Kid on April 3, 2013 at 11:57 PM

The reason the young people are being left behind is because the Government cannot leave well enough alone. A tight loan market will make prices fall, while a loose market will drive prices up.

That’s the lesson from the last time around, and it’s one the President should heed.

Homes right now are too expensive for our kids to buy — the prices are too inflated. Let them deflate and everything will work itself out.

unclesmrgol on April 4, 2013 at 1:04 AM

It’s the same song Clinton sang and the lesson is also the same. They never learn.

mixplix on April 4, 2013 at 4:24 AM