The Obama administration is setting the stage for yet another housing bubble that will sooner or later burst — while we’re still licking our wounds from the last one.
Real estate observers agree that housing prices still plummet in some areas of the country, while mortgage foreclosures continue to march on. According to a May 26 Reuters article, “More than 1 million Americans who have taken out mortgages in the past two years now owe more on their loans than their homes are worth.”
The last housing bubble was created by skyrocketing demand, fomented by banks offering mortgages to borrowers who couldn’t — or wouldn’t — repay them. Dubbed subprime mortgages, they were written with the blessing of the federal government.
Problems soon erupted from the easy credit handed out like lollipops to risky borrowers, a practice advanced through the Community Reinvestment Act. Former U.S. Sen. Chris Dodd, D-Conn., and U.S. Rep. Barney Frank, D-Mass., were among the most vocal proponents of the Community Reinvestment Act, and both called for its expansion. Not everyone was so enamored over it, though. In April 2001, the Bush administration raised alarms over its excessive implementation, but not enough lawmakers listened. As a result, the housing market, financial services industry and eventually the entire economy marched inexorably off the cliff.
If the Obama administration has its way, that nightmare may be repeated — and for pretty much the same reasons. According to last weekend’s New York Post:
With studies showing home foreclosures hitting blacks and Latinos hardest, the Obama administration’s answer is baffling as well as destructive — to lend them more money, repeating the cycle of easy credit that led to the housing boom and bust.
A new AARP report finds that even elderly minorities are facing serious mortgage delinquencies. Fifty-and-over African-Americans, for example, are almost twice as likely to lose their home as older whites.
President Obama’s solutions, however, look a lot like the original problems that landed minorities in the financial mess they’re in today.
The Community Reinvestment Act has now passed the easy credit baton to the Consumer Financial Protection Bureau, created by the Dodd-Frank Act. Dodd-Frank was controversial when it was debated in Congress and is the bane of the financial services industry today.
Since the days that Congress allowed the Community Reinvestment Act to run amok, emphasis has shifted from income to diversity. The mantra 11 years ago was that every person should be a homeowner, no matter his financial status. Today’s mantra is much the same — that every person should be a homeowner, no matter his race. Both goals miss the mark. It should be: Anyone who wants to be a homeowner should be — so long as he can afford it.
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