The feds on the left are at it again, playing with fire in a game they don’t understand, and it’s already caused major calamities for American taxpayers.
Housing loans were the underlying cause of the financial crisis that started in late 2007, a haunting specter that hovers today. Thank the federal government’s policies and regulations for sparking the housing implosion and mortgage meltdown.
Flashbacks to that panicked time are scary enough, but here’s what’s scarier: It’s déjà vu all over again; government regulators are lowering the borrowing standards on mortgage applications.
Why can’t the federal government learn from its mistakes?
The disasters that led to the first mortgage and housing crisis started in 1992, when the Democratic Congress passed a law mandating mortgage credit be awarded to low-income buyers. Congress forced Fannie Mae and Freddie Mac to purchase loans under the 1997 Community Reinvestment Act, opening the floodgates on trillions of dollars of “affordable-housing” loans to borrowers with no credit history or problematic histories, and requiring down payments of only 5 percent or less.
President Bill Clinton then re-wrote the reinvestment act, putting it “on steroids,” as the Investor’s Business Daily wrote, juicing it into overdrive. The new act required banks “to lend to people who were poor credit risks,” according to the Washington Times, and “forced banks to subsidize poor communities with close to $1 trillion in high-risk loans. A Chicago ‘public interest’ lawyer named Barrack Obama was active in this movement.”
But that wasn’t the worst of it. Clinton ordered the Department of Housing and Urban Development to set quotas for “affirmative action” lending, forcing Fannie Mae and Freddie Mac to focus on minority and low-income buyers. Clinton also changed the rules so that banks faced serious fines if they did not loan to low-income borrowers. Janet Reno’s Department of Justice and the Comptroller of the Currency prosecuted several dozen cases against banks, and pried several hundred million dollars in fines for “discrimination” against high-risk borrowers, The Wall Street Journal reported. Damned if you do, condemned if you don’t.
By late 1990s, the politically motivated Freddie and Fannie were accepting mortgages with zero down payments. The chaos resulted in a monstrous price bubble and a devastating debacle of mortgage losses incurred by borrowers, the banks that were forced to lend and, later, the taxpayers.
Now, the U.S. government is filling the housing giveaway trough again. “The Fed and Obama administration have been compressing mortgage interest rates for some time now,” the Government Refinance Assistance website admits.
The result: Mortgage rates on government-backed mortgages are running as low as 2.75 percent this month. In December, Fannie and Freddie announced a conventional loan program with 3 percent down payments for family homes. Borrowers with horrible credit problems can again get federal housing loans, because, as the Federal Housing Authority coos, “FHA loans are excellent loans for borrowers with less than stellar credit. The FHA is much more lenient on credit scores…” This comes after an October action by HUD and other regulators to allow loans with zero down payments, just like in 1999 on the way up to bursting the housing bubble.
So here we go again, with the federal government fueling bad credit risks and throwing America back into the housing black hole and on the path to the next housing bubble.
The truth is that it’s more important to leftist politicians and bureaucrats to push dead-end housing policies that jack up taxpayer liability and give away financial goodies to high-credit-risk, irresponsible borrowers who cannot afford to buy a home. What we have here is a classic vote-buying scheme by the Democratic left, to retain power. Then, when the country faces another housing free-fall and mortgage meltdown, leftists can again blame the evil mortgage bankers. It’s a rerun of a bad B-movie we have seen and suffered through before.