Another Subprime Idea from Obama
by Diane Katz
The
Obama Administration is reportedly pushing
banks to increase mortgage lending to people with relatively weak
credit in
hopes of boosting home sales. But the very same policy under Presidents
Clinton
and Bush contributed mightily to the housing bubble that ultimately
devastated
millions of families in mortgage default.
Credit
is indeed tight—a predicament that’s
exacerbated by the President’s tax and regulatory policies. Reforms to
those
policies are needed to prompt housing-sector growth.
Home
sales have improved in the past year—but
there was no place to go except up. The rebound is largely confined to
rental-property investments and established homeowners with exemplary
credit.
Home sales to younger, first-time buyers—those necessary to a healthy
market—remain scant.
Bankers’
current caution is understandable.
High unemployment, tepid economic growth, and punishing tax and
regulatory
burdens have made lending particularly risky and costly.
Nor
are borrowers banging on bankers’ doors.
Currently, only 58.6 percent of U.S. adults are working, a number that
has
barely changed since 2009. Young adults have been disproportionately
affected.
Indeed, the number of individuals age 18 to 30 living with parents or
relatives
has increased by more than one million above typical levels in recent
years,
according to research by the Federal Reserve.
At
the same time, the regulatory jihad of
Dodd–Frank has radically expanded creditors’ liability for mortgage
defaults—among countless other new requirements that have made lending
too
costly for all but the most secure mortgages.
Hundreds
of pages of new servicing standards,
for example, entangle in red tape the collection of mortgage payments
as well
as maintenance of escrow accounts, loan modifications, and
foreclosures. Other
Dodd–Frank provisions dictate virtually every element of the loan
process.
Of
particular consequence is the Qualified
Mortgage rule, which dictates the criteria that determine whether a
borrower
can repay the loan. Under Dodd–Frank, borrowers have the right to sue
lenders
for improperly assessing their “ability to repay” a mortgage. Lenders
who write
loans that do not meet the “qualified mortgage” criteria face a much
greater
risk of default litigation.
In
the past, creditors would balance greater
risk by charging a higher interest rate. But Dodd–Frank also punishes
lenders
who would do so.
The
President’s call for (essentially) more
subprime lending appears to conflict with these and other regulatory
restraints
he aggressively advocated. Perhaps the Administration now understands
why
Dodd–Frank opponents repeatedly warned that such policies would
restrict
credit.
Taxpayers
should worry a great deal if the
White House, as reported, is promising to cover the inevitable defaults
of
subprime borrowers. They have already forked over more than $100
billion to
bail out the politically driven subprime lending of Fannie Mae and
Freddie Mac.
The
last thing the President should be doing is
pushing banks to extend mortgages to people who cannot afford them.
Been there,
done that—with disastrous consequences. Credit will flow again on its
own if
crippling tax and regulatory constraints are lifted.
Source:
blog.heritage.org
Read
this and other articles at Mail Magazine
24
|