Deja vu, from todays WSJ: Fannie Mae, Freddie Mac, and mortgage lenders are nearing an agreement that could lower barriers and restrictions on borrowers with weak credit... Whoa. Wasnt that the sort of thing that triggered the housing bubble that helped along the current recession? And werent the banks who wrote these loans heavily penalized? Read on: The move by the mortgage finance giants and their regulator, the Federal Housing Finance Agency, would help lenders protect themselves from claims of making bad loans... Once bitten, twice shy. Beginning in the 1990s a lot of community groups and politicians used provisions added to the Community Reinvestment Act to pressure banks into writing more high-risk loans in inner city areas. You want to expand, or build a new branch, or get your charter renewed? Write more high-risk loans. When many of those loans were defaulted on, the government came after the banks. This time they want assurances thats not going to happen again. Fannie and Freddie are also considering programs that would make it easier for lenders to offer mortgages with down payments as little as 3% for some borrowers... With only 3% down, it doest take much of a downturn for a borrower to be underwater, and to decide to simply walk away from a mortgage. So why is the administration pushing the kinds of policies that led to high rates of default in the last housing bubble? Perhaps theyre willing to take the risk in order to pump up the economic numbers- knowing that the next collapse will happen during someone elses presidency.
Posted on: Sat, 18 Oct 2014 13:56:08 +0000
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