The Obama Administration Is Gearing Up to Cause Another Mortgage Meltdown

By Dr. Merrill Methews—Institute for Policy Innovation

Great news!  The Obama administration is dead set on dragging the country into another mortgage meltdown.

The Wall Street Journal reports, “Mortgage-finance giant Freddie Mac and two nonbank lenders are loosening income and documentation requirements for mortgage applicants in a new pilot program.”

The Journal explains, “The changes announced Monday [Sept. 19] are designed to help boost mortgage originations among first-time buyers, applicants with low-to-moderate incomes and those who live in underserved areas.”

Wait, wasn’t the government’s efforts to put lower-income families into houses they couldn’t afford a major factor in the 2007 mortgage crisis?

Yes, it was.

As Peter Wallison of the American Enterprise Institute and a member of the Financial Crisis Inquiry Commission explained in The Atlantic a few years ago, Rep. Barney Frank (D-Mass.) imposed “affordable housing” requirements on Fannie Mae and Freddie Mac in 1992.

Both Presidents Bill Clinton and George W. Bush increased the quota of government-backed lower-income mortgage holders because they liked boasting that lower-income families were buying homes under their administrations.

But it was a house of cards. When the economic downturn hit, many of these families could no longer afford their homes, creating the mortgage meltdown.

Members of Congress said they learned their lesson and tightened the requirements.

But the left never learns from financial disasters, and so President Obama—arguing that Wall Street, not the government, caused the crisis—replaced the acting director of the Federal Housing Finance Agency, Edward DeMarco, with Melvin Watt, a Democratic congressman from North Carolina. The FHFA is the conservator of Fannie and Freddie.

DeMarco had objected to Obama’s expansion plans and, as NPR reports, “faced heat from administration officials and fierce criticism from liberal housing groups who called for his resignation.”

Now the fix is in. Consider this the left’s first volley for even weaker income standards that will lead to a future mortgage crisis.

Of course, the better course would be to implement pro-growth economic policies, including tax reform, that expand hiring and investment so that lower-income people can actually qualify for a home mortgage.

But for the left, lowering standards, not improving performance, is how they always meet their goals.

Today’s PolicyByte was written by Dr. Merrill

3 comments

  1. I agree with the comment above – the writer needs to do his homework. Private lenders had unacceptably high default rates whilst Freddie & Fannie performed the best out of everyone. Facts don’t lie.
    In addition, banks had to pay both of them hundreds of million dollars of penalties and fines for misrepresenting their loans to Fannie & Freddie.
    Just a suggestion – it’s probably not a good idea to quote or be inspired by anything that Peter Wallison believes. He has a well-known agenda and often misrepresents facts.
    Hey, I am just trying to help.
    It’s fine to be ideologically against the GSEs, many people are, but it should be communicated thoughtfully and honestly. Lies and propaganda won’t help the cause, no matter how much some wish that it would. Sorry.

  2. He has a doctorate? Goodness.. Unbelievable. There’s not even an ounce of facts on what he has written. And the people he quoted (Wallinson, Demarco) has not been true advocates of housing finance reforms. They are spinning lies after lies that has been found out by the careful investigators.

  3. How did you get your doctorate. A cereal box? Do your homework. It was private lenders like Countrywide and big bank gambling that caused the crash. The GSEs actually by doing their jobs as they have for 75 years have bailed out housing. You and the rest of the lying cronies will be exposed for the con men that you are.

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