Defining madness: Obama administration encouraging sub-prime mortgages

Posted by: Phineas on April 4, 2013 at 1:01 pm

**Posted by Phineas

Isn’t this how we got into the current mess?

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.

President Obama’s economic advisers and outside experts say the nation’s much-celebrated 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, administration 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.

Quick summary for those to whom this might look familiar, but not recall why: In the late 80s and early 90s, urban community organizing groups such as ACORN, particularly in the Chicago area (1), pressured banks from below to give easy credit to borrowers with bad credit or low incomes so they could buy homes.Because many were minority buyers, the groups would charge “racism” and levy bogus accusations of discriminatory “red lining” when banks (sensibly) resisted. These leftist groups found allies in progressive Washington Democrats, particularly the Clinton administration’s Department of Housing and Urban Development headed by Secretary Andrew Cuomo, now New York’s governor.

To complement the interest group pressure from below, HUD put “carrot and stick” pressure on the banks from above: the stick was the threat of anti-discrimination lawsuits and the blocking of mergers that required government approval. The carrot was the willingness to have Fannie Mae and Freddie Mac buy these risky loans from the banks, then bundle them and sell them into the securities market backed by the full faith and credit of the US government, and therefore us.

This went on into the 2000s, with Democrats (2) fighting tooth and claw against any effort to fix the growing problem and rein-in these bad, dangerous, monstrously stupid practices. Finally the asset bubble collapsed in 2007-08, people lost their homes, banks collapsed, nearly a trillion taxpayer dollars were burned trying to stem the tide, and the world was thrown into a severe recession. All because of government engineering of the marketplace.

And now Obama wants to do it all again, because this time will be different? (3)


Via Dan Mitchell, who has excellent explanations of why this kind of intervention is wrong, harmful, and doomed to failure.

(1) Gee, whom do we know who came from there, and who, as a young lawyer, was an attorney for these same groups? Hmm…
(2) Yes, I know Republicans tried to take advantage of this, too. Home ownership was a big part of their “ownership society” spiel. But at least they saw the potential danger and tried to avert it, unlike the Democrats. Oh, and let’s not forget the Democrats’ corruption, either.
(3) Actually, to distract from the fact that his housing policies since coming to office have been miserable failures.

(Crossposted at Public Secrets)

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7 Responses to “Defining madness: Obama administration encouraging sub-prime mortgages”


  1. Carlos says:

    There’ve been a few of us out here telling anyone who would listen that it wasn’t the Booosh administration’s fault banking policies were so screwed up, it was many Democraps and a few RINOs who had forced the banks into such unsavory lending practices, along with particular Chicago activist lawyers and weak-kneed bank execs who wouldn’t stand up to the lawyers’ extortive threats.

    And as far as “because this time it will be different” goes, that’s typical leftist/statist/Nazi reasoning because they know, beyond a shadow of a doubt, the reason any particular socialist program has failed in the past is because it wasn’t being run by the “right” people who, as it just so happens, happens to be them!

  2. Dana says:

    There has been a fundamental change in the mortgage industry. Before the last crash, the home was both the necessary and sufficient collateral for the loan. Now the lenders have so much inventory that they own, cannot sell and cannot manage, that while the home is still the necessary collateral, it’s no longer sufficient collateral on its own: they need homebuyers with a record of stability and reliability.

    That’s just sane and reasonable lending practice. But it also means that, since blacks have, in the aggregate, poorer credit, longer unemployment periods and less job stability, there is going to be a disparate denial rate for potential black borrowers. The mortgage companies’ policies aren’t racist in the slightest, but they do have different impacts on separate racial groups.

    If we looked at people as just people, as just individuals, this wouldn’t be a problem; it’s only when we look at them as various groups that it becomes a problem.

  3. Would you buy a used recession from this man?

  4. Carlos says:

    Gee, I wonder why convicted felons can’t possess firearms? Wouldn’t have anything to do with history now, would it?

    Or why states take away drivers licenses after a couple of DUIs? Again, wouldn’t have anything to do with history, would it?

    So, with elitists and academics and social activist lawyers being the smartest people in the world, they know historical economic performance doesn’t have a thing to do with future economic performance as an individual, and certainly, taken as a class, any class, future economic performance simply has absolutely no relationship to past economic performance…

    As was noted by someone else, somewhere else, these folk are so stupid I wouldn’t want them babysitting a pet rock!

  5. Dana says:

    Mr Fahrquar footnoted:

    Actually, to distract from the fact that his housing policies since coming to office have been miserable failures.

    This footnote demonstrates a no-win situation for the President. If we maintain the sounder lending policies adopted in the wake of 2008, then we are going to show lower homebuying rates. And if we see homebuying rates return to the levels of, say, 2004, then we will also be looking at a return of unsound lending policies.

    I don’t give President Obama much credit for anything other than lifting up Jimmy Carter from the bottom of the worst presidents of all time list, but I can’t fault the President much when it comes to the housing market: it’s simply outside of his control.

  6. Carlos says:

    So, I don’t understand, Dana. Are you saying housing policy is outside the sphere of influence of the president? Then even a mental sloth like him should be able to understand efforts to return to the policies he pushed in the 90s as a community activist lawyer, forcing banks into policies they didn’t like nor could (in the long run) live with (called “extortion” under almost any other circumstances outside of IRS collection policies) would be counterproductive to his goals.

    No, he and his ideological minions are forcing regulators into the same corner they were forced into by such as Dodd and Franks in the 90s, that, eventually, will result in the same catastrophe.

  7. tommy mc donnell says:

    look how well this policy worked for the left the last time. it almost sunk the entire economy. maybe this time it will finish the job.

    its a marxist’s job to destroy the existing order.