Debate Magazine

Obama Wants Banks to Make Home Loans to People with Poor Credit

Posted on the 03 April 2013 by Eowyn @DrEowyn

my work here is done

If you need more evidence of Obama being a psychopath, here it is.

Recall the Great Recession that began in 2008 was in large part due to the bursting of the housing bubble. That bubble, in turn, was caused by risky mortgage lending to too many people whose financial profiles make them poor candidates for loans.

Today, five years after the collapse of the housing market and contrary to the insistence that the market is “recovering,” the U.S. landscape is still littered with 301,874 “zombie” properties in which homeowners in foreclosure have moved out, leaving vacant  property susceptible to vandalism and degradation. The number of U.S. homes in foreclosure or bank-owned actually increased by 9% to 1.5 million properties nationally in the first quarter of 2013 compared to a year ago, while another 10.9 million homeowners nationwide are “under water” because they owe more than their property is worth. (See DCG’s post of March 28, “Obama’s New America….“)

Nearly 11 million U.S. homes are still under water

And yet the POS is pushing to make more home loans available to people with weak credit, which was exactly what had created the housing bubble and its subsequent bursting!

What if those people default on their mortgages?

Why, the 49% of hard-working Americans suckers who still pay income taxes will make up the difference! That’s wealth redistribution socialism, bro!

Zachary A. Goldfarb reports for The Washington Post, April 2, 2013, that Obama pledged in his State of the Union address to do more to make sure more Americans can enjoy the benefits of the housing recovery. His  economic advisers say the 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, the Obama administration wants banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administrationthat insure home loans against default.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.Deciding which borrowers get loans might seem like something that should be left up to the private market. But since the financial crisis in 2008, the government has shaped most of the housing market, insuring between 80% and 90% of all new loans, according to the industry publication Inside Mortgage Finance. It has done so primarily through the Federal Housing Administration, which is part of the executive branch, and taxpayer-backed mortgage giants Fannie Mae and Freddie Mac, run by an independent regulator.The FHA historically has been dedicated to making homeownership affordable for people of moderate means. Under FHA terms, a borrower can get a home loan with a credit score as low as 500 or a down payment as small as 3.5%. If borrowers with FHA loans default on their payments, taxpayers are on the line — a guarantee that should provide confidence to banks to lend.

But banks are largely rejecting the lower end of the scale, and the average credit score on FHA loans has stood at about 700. After years of intensifying investigations into wrongdoing in mortgage lending, banks are concerned that they will be held responsible if borrowers cannot pay. Under some circumstances, the FHA can retract its insurance or take other legal action to penalize banks when loans default.

“The financial risk of just one mistake has just become so high that lenders are playing it very, very safe, and many qualified borrowers are paying the price,” said David Stevens, Obama’s former FHA commissioner and now the chief executive of the Mortgage Bankers Association.

But critics say encouraging banks to lend as broadly as the administration hopes will sow the seeds of another housing disaster and endanger taxpayer dollars. “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.

But Administration officials say they are looking only to allay unnecessary hesi­ta­tion among banks and encourage safe lending to borrowers who have the financial wherewithal to pay. An unnamed senior administration official who was not authorized to speak on the record said, “There’s always a tension that you have to take seriously between providing clarity and rules of the road and not giving any opportunity to restart the kind of irresponsible lending that we saw in the mid-2000s.”

Blah, blah, blah.

H/t FOTM’s Christy.


Back to Featured Articles on Logo Paperblog