Update: This got sent over to me last night and I didn’t check the date closely enough. It’s from April 2013 … which is probably why it sounded as familiar as it did. My apologies.
Original post follows….
What a great idea! This should end well. It’s not as if it’s been tried before and created an international crisis that nearly ended the global economy as we knew it.
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.
Say, that does sound familiar. Only instead of the FHA, the federal government used Fannie Mae and Freddie Mac to indemnify lenders against the folly of their own lending decisions. I wonder why the Obama administration isn’t using those quasi-governmental organizations to do the same this time … oh, wait. Let’s not forget that FHA warned three years ago that its capitalization had turned negative; at the time, the Washington Post warned that the FHA’s outlook was too positive.
So far, the lending institutions aren’t exactly lining up for the slaughter, mindful of the push after the last crisis to stand them all up against the wall for exploiting those with higher-risk profiles. That’s why housing officials want the Department of Justice to issue get-out-of-jail-free cards to lenders … again:
Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.
Actually, they may still have those from 2008. The Obama administration came into office promising to punish those who created the financial crisis, but has not prosecuted anyone. Why? Cynics will say it’s because the financial industry is too important to politicians to be held accountable for their crimes, but the simple truth is that social-engineering politicians of both parties fueled the bubble for a decade as a way to claim progress on home ownership.
By the way, the bubble didn’t just involve the poor or working class. The rapid rise in ghost equity and the cheap loans available to everyone created a massive overextension as people used their houses as ATM machines. It also caused others who should have known better to overpurchase, using ghost-equity growth as a way to refinance loans they couldn’t afford on larger-than-needed homes. All of that began with government intervention that fueled unrealistic demand, which then fueled unrealistic growth in property values, and which then left many underwater when the music stopped.
Another government intervention of this kind will start the same cycle all over again. The benefit of loosening up credit in this case is far outweighed by the risk it will create and the destruction it will cause. One mortgage-market-fueled financial meltdown should suffice as a hard lesson for a lifetime.