Tag Archives: Housing Bubble

Obama administration pressuring banks to lower mortgage lending standards

Remember the housing bubble and the mortgage lending crisis of 2008? Well guess what – the Democrats want an encore.

Investors Business Daily explains.

Bankers warn the administration’s new “disparate impact” home-lending regulation will wreak havoc in credit markets, replacing merit standards with political correctness.

The Department of Housing and Urban Development issued the controversial new anti-discrimination rule earlier this year. Now enforced by every federal regulator dealing with banks, it has the effect of criminalizing credit standards used to qualify borrowers for home loans.

Last week, the Mortgage Bankers Association and Independent Community Bankers of America jointly filed a Supreme Court brief arguing that under the new HUD rule:

“Virtually every lender in the United States could be sued for using non-discriminatory credit standards simply because variations in economic and credit characteristics produce different credit outcomes among racial and ethnic groups.”

In their 33-page brief, filed in support of a landmark housing case pending before the court, they complain that HUD recently launched 22 separate investigations against lenders alleging that their policies of requiring minimum credit scores “had a disparate impact on minorities in violation of the Fair Housing Act.”

Dozens of similar actions have been brought against lenders by Attorney General Eric Holder. He is basing claims of bias on statistics showing differences in loan outcomes by race while ignoring racially neutral credit-risk factors that explain those differences.

Under disparate impact’s low standard of proof, the government doesn’t have to show lenders intentionally discriminated against borrowers.

For the first time in history, businesses are being ordered to justify the necessity of a certain level of return on investment given the racial impact resulting from the use of credit-score thresholds.

The mortgage trade groups argue the formalized disparate-impact rule also effectively criminalizes other legitimate business practices, including minimum down-payment requirements, sliding loan rates and the charging of brokers’ fees.

Banks today face increased litigation risk simply by complying with sensible lending standards for hedging against risk.

[…]The social engineers and race demagogues in this administration are trying to enforce a balance in financial outcomes that risks another collapse of the housing market. The Supreme Court must put an end to a scheme so reckless, unfair and unconstitutional.

Does that sound familiar? Yes. In the last recession, the government forced banks to make risky loans in order to increase home ownership. That is exactly what gave us the 2008 recession.

Excerpt:

[Democrat] Congressman [Barney] Frank, of course, blamed the financial crisis on the failure adequately to regulate the banks. In this, he is following the traditional Washington practice of blaming others for his own mistakes. For most of his career, Barney Frank was the principal advocate in Congress for using the government’s authority to force lower underwriting standards in the business of housing finance. Although he claims to have tried to reverse course as early as 2003, that was the year he made the oft-quoted remark, “I want to roll the dice a little bit more in this situation toward subsidized housing.” Rather than reversing course, he was pressing on when others were beginning to have doubts.

His most successful effort was to impose what were called “affordable housing” requirements on Fannie Mae and Freddie Mac in 1992. Before that time, these two government sponsored enterprises (GSEs) had been required to buy only mortgages that institutional investors would buy–in other words, prime mortgages–but Frank and others thought these standards made it too difficult for low income borrowers to buy homes. The affordable housing law required Fannie and Freddie to meet government quotas when they bought loans from banks and other mortgage originators.

At first, this quota was 30%; that is, of all the loans they bought, 30% had to be made to people at or below the median income in their communities. HUD, however, was given authority to administer these quotas, and between 1992 and 2007, the quotas were raised from 30% to 50% under Clinton in 2000 and to 55% under Bush in 2007.

[…]It is certainly possible to find prime mortgages among borrowers below the median income, but when half or more of the mortgages the GSEs bought had to be made to people below that income level, it was inevitable that underwriting standards had to decline. And they did. By 2000, Fannie was offering no-downpayment loans. By 2002, Fannie and Freddie had bought well over $1 trillion of subprime and other low quality loans. Fannie and Freddie were by far the largest part of this effort, but the FHA, Federal Home Loan Banks, Veterans Administration and other agencies–all under congressional and HUD pressure–followed suit. This continued through the 1990s and 2000s until the housing bubble–created by all this government-backed spending–collapsed in 2007. As a result, in 2008, before the mortgage meltdown that triggered the crisis, there were 27 million subprime and other low quality mortgages in the US financial system. That was half of all mortgages. Of these, over 70% (19.2 million) were on the books of government agencies like Fannie and Freddie, so there is no doubt that the government created the demand for these weak loans; less than 30% (7.8 million) were held or distributed by the banks, which profited from the opportunity created by the government. When these mortgages failed in unprecedented numbers in 2008, driving down housing prices throughout the U.S., they weakened all financial institutions and caused the financial crisis.

Reduced lending standards caused the last recession, and now the same party that pushed for reduced lending standards are pushing for reduced lending standards again. Hold onto your hats, there’s a storm coming.

New housing bubble: Obama proposes lowering mortgage-lending requirements

I must have blogged a million times about how the Democrats caused the recession by forcing banks to make bad loans to people who couldn’t pay them back. Although the Republicans got blamed for the crisis, they were the ones who tried to regulate Fannie Mae and Freddie Mac, but they were shut down by Democrats. Well, guess what? The Democrats didn’t learn their lesson the first time, and they want to start another housing bubble, just like the first one that gave us the recession.

Take a look at this article in the leftist Washington Post. (H/T ECM)

Excerpt:

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.

[…][A]dministration 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.

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.

Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps.

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, 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.

And if that was not enough,the Democrats also have another bubble being inflated. They nationalized the student loan industry, and now taxpayers are going to have to bail out those risky unpaid student loans as well.

Excerpt:

America’s now-nationalized student loan industry just reached a value of $1 trillion, according to Citigroup, growing at a 20 percent-per-year pace. Since President Obama nationalized the industry (a tacked-on provision of the Obamacare bill), tuition has gone up 25 percent and the three-year default rate is at a record 13.4 percent.

[…]With many young people unable to pay their loans (average graduating debt is about $29,000), Citigroup and others are speculating that this industry might be ripe for a bailout.

To pay off all the current defaults, Citigroup says it would cost taxpayers $74 billion. However, this number doesn’t include those who will default in the coming years, and, when the government rewards the defaulters, it will encourage more borrowers not to pay their debts.

And liberals in Congress have proposed forgiving all student loans via “The Student Loan Forgiveness Act 2012,” costing taxpayers $1 trillion.

Adding another $1 trillion dollars to the national debt isn’t exactly “forgiveness” for young people—it’s prolonging the payoff. In fact, student loan bailouts are a catch-22 for young people because they’re going to be held accountable for paying off the national debt and interest payments.

At least the young people who voted for Obama are going to be the ones to get the bill for his socialist economic policies.

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SATIRE: Paul Krugman spends himself into bankruptcy

PaulKrugman

From Daily Currant. (Not a conservative site!)

Excerpt:

Economist and columnist Paul Krugman declared personal bankruptcy today following a failed attempt to spend his way out of debt.

In a Chapter 13 filing to the United States Bankruptcy Court in the Southern District of New York, lawyers for Krugman listed $7,346,000 in debts versus $33,000 in assets.

The majority of his debts are related to mortgage financing on a $8.7 million apartment in lower Manhattan, but the list also includes $621,537 in credit card debt and $33,642 in store financing at famed jeweler Tiffanys and Co.

The filing says that Krugman got into credit card trouble in 2004 after racking up $84,000 in a single month on his American Express black card in pursuit of rare Portuguese wines and 19th century English cloth

Rather than tighten his belt and pay the sums back, the pseudo-Keynesian economist decided to “stimulate” his way to a personal recovery by investing in expenses he hoped would one day boost his income.

[…]Between 2004 and 2007 Krugman splurged on expensive cars, clothes, and travel in hopes that the new lifestyle would convince his bosses at the New York Times to give him a giant raise.

“They say always dress for the job you want,” Krugman explains. “So I thought maybe if I showed up in $70,000 Alexander Amosu suits they would give me ownership of part of the company. If I had only been granted a sliver of the New York Times Co., I could have paid everything back.”

Even after he realized an equity stake was not going to happen, Krugman continued to spend wildly hoping his bling and media appearances would increase demand for his personal brand and lift his book sales.

His biggest mistake came in 2007, when at the height of the financial bubble he decided to invest in high-end real estate in New York City. His multi-million dollar apartment lost 40 percent of its value just months after its purchase, and has been underwater ever since.

“You’d think a Nobel Prize winning economist could recognize a housing bubble,” says Herman Minsky, a retired television executive who purchased Krugman’s home at a huge discount. “But hey, I’m not complaining.”

That’s your Friday funny.