Lax Lending Could Blow Up Housing Market Again
I had a bad car accident once and for awhile after, I drove very carefully. Slowly, over time, my bad driving habits returned. It is the same when someone has a health scare, like a heart attack. Immediately after, they diligently follow the doctor's orders regarding diet, exercise and smoking. But again, over time, most people revert back to their old habits.
Is the Government back to their old ways? People might think that the after this latest housing crisis, the Government would realize that not every one should own a home. But already, the pressure is on for banks to lend to people using less stringent criteria and accepting lower credit scores.
Are we destined for another housing crash? Read this article from the Washington Times.
Double bubble Lax lending policy could blow up housing market again
Americans have lost more than $4 trillion in assets since the housing market collapsed in 2006. Risky government mortgage lending regulations helped inflate prices beyond reason, but those policies have not gone away. Instead, they've just moved into a new home, the Federal Housing Administration (FHA). Unless Congress acts to renovate eligibility requirements for borrowers, we could see an even worse financial disaster unfold.
Congress began blowing the initial bubble in 1992 when it amended Fannie's and Freddie's charters to compel the mortgage giants to back financing for low- and middle-income families seeking housing. Subsequently, those enterprises induced mortgage lenders to relax their qualification standards, allowing millions to buy homes with no or little money down. As these properties went into foreclosure starting in 2006, the red ink at Fannie and Freddie ran into the hundreds of billions - with the public footing the bill. In October, the Federal Housing Finance Agency estimated the eventual cost to taxpayers would be up to $360 billion.
The pressure to perpetuate dicey lending has begun already. The National Community Reinvestment Coalition, a housing rights group, filed complaints on Dec. 7 with the Department of Housing and Urban Development, claiming 22 banks across the country have violated fair-housing laws by denying FHA-insured loans to black and Hispanic borrowers with credit scores above the federal minimum.
The FHA insures loans for borrowers with a minimal credit score of 580 and a down payment of 3.5 percent. The feds responded the next day by launching an investigation into the banks' practices.
If Republicans in the 112th Congress intend to make good on their promise to set the country back on the path to financial stability, they should toughen FHA mortgage lending standards by requiring higher credit scores and larger down payments. Better yet, the feds should get out of the mortgage business altogether and let the free market reach an equilibrium free of bubble and bust.
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