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