Heavily dependent on credit, housing is straining to get it. The whole sector has moved from bubble to bottleneck. Its contribution to the recovery may disappoint. First-time and minority buyers especially struggle to borrow. “We all agree that credit was way too loose” in the bubble, says Goodman. “But credit is way, way tighter now than it was in 2002 and 2003” before the bubble, she says.
Maybe falling unemployment and rising house prices — both credit pluses — will ease the anti-lending bias. Maybe regulatory changes involving Fannie and Freddie will encourage lending. Or maybe not.
Public policy faces a contradiction. There’s a powerful impulse to blame banks for the financial crisis and to “make them pay.” Just recently, the Obama administration sued Bank of America, charging it with fraud in selling $850 million worth of mortgage-backed bonds. (The bank denied the charge.) These attacks remind banks of mortgage lending’s perils. “Every time a lender is publicly sued or flogged,” says Cecala, “makes it less likely they’ll loosen standards.” What’s politically convenient is economically damaging. Which do we favor?
Join the conversation as a VIP Member