Artificially low rates, government legislation and money-printing were all ingredients for the housing collapse recipe that transpired a few years ago. Ostensibly, the United States hasn’t learned its lesson as unstable mortgages could very well produce another major housing collapse in the near future, says Paul Sperry, a media fellow at the Hoover Institute.
Sperry wrote in the New York Post on Sunday that the U.S. is returning to its lax mortgage standards that it maintained prior to the 2008 debacle. For instance, mortgage agencies Fannie Mae and Freddie Mac have made the decision to secure loans to low-income homebuyers who put down only three percent, which Sperry says has a high rate of default.
The problem with this type of move is that these mortgage agencies will back 90 percent of loans, which will then prompt private lenders to institute lax standards as well – this is what you call a moral hazard, something that is not in the vernacular of most bureaucrats and politicians.
“Many of these weak loans will, in turn, be securitized and traded on Wall Street. This is the hazardous cycle that led to the financial crisis,” wrote Sperry. “The administration, with help from the media, has convinced the public that greedy Wall Street banks were to blame for the disaster, not Fannie and Freddie and their ‘mission’ regulators in Washington.”
The three percent down payment rule was announced in October, and it created a wave of criticisms. Peter Wallison, a fellow at the American Enterprise Institute and former Reagan administration official, ultimately sees where this is heading: another taxpayer bailout akin to a few years ago.
“The fact that the government is once more trying to reduce underwriting standards, in order to sell more homes, shows clearly that the lessons of the financial crisis are again being ignored,” Wallison wrote. “Taxpayers should ask themselves why they just stand by and let this happen.”
Of course, private mortgage lenders do support this initiative, says Rohit Gupta, chief executive officer of Genworth Mortgage Insurance and co-chair of U.S. Mortgage Insurers, who noted that this kind of environment does actually work, and the U.S. shouldn’t prohibit low-income families from acquiring a home.
“Fully documented, low down-payment loans with the right credit score and right debt-to-income ratio have performed in this cycle,” Gupta said. “We have empirical data that those loans can be insured.”
Dave Stevens, CEO of the Mortgage Bankers Association, agreed: “These loans will be underwritten more conservatively and will likely come with higher mortgage insurance costs. History has shown that these loans, when properly underwritten, perform well.”
The old adage is that history repeats itself. This is exactly what’s happening with low down payments and the overall housing market. At the height of the housing bubble, many private lenders required no down payments, which intrigued many and compelled the impecunious consumers to decide to buy a home they couldn’t afford.
The subprime mortgage meltdown helped produce one of the greatest economic collapses in U.S. history. Yet, for some reason or another, the federal government has decided once again to re-inflate a bubble and think it can give everyone a house. Remember, politicians say everyone has the right to a house.
America??????? Is a land no different than China, Russia or Western Europe. China has controlled its inflation, has thrown US and British banks out of their country because they wanted to do to China, what they have to Western Europe and the USA. What needs to be done is “ALL WASHINGTON POLITICIANS NEED TO BE REMOVED”. Start all over again.
Without any doubt the low-income families have the right to have their own homes, but unfortunately they are the first to get under the stroke when a new crisis sets in. Our family seeks for a new home now, we are going to find a loan provider through http://interestratesmortgageloans.com/, and provide 30% of down payment. I do hope that will save at least us in case of a new housing bubble.