April 2, 2013

Mortgage mania: "The past is never dead. It's not even past."

Lately, I've been posting summaries of academic research into the true nature of the mortgage meltdown of a half decade ago. I realize that sounds like ancient history of no relevance, but from today's Washington Post:
Obama administration pushes banks to make home loans to people with weaker credit 
By Zachary A. Goldfarb, Updated: Tuesday, April 2, 5:48 PM 
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place. ...
In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default. 
Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default. 
Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps. ...
“If you were going to tell people in low-income and moderate-income communities and communities of color there was a housing recovery, they would look at you as if you had two heads,” said John Taylor, president of the National Community Reinvestment Coalition, a nonprofit housing organization. “It is very difficult for people of low and moderate incomes to refinance or buy homes.”
“If the only people who can get a loan have near-perfect credit and are putting down 25 percent, you’re leaving out of the market an entire population of creditworthy folks, which constrains demand and slows the recovery,” said Jim Parrot, who until January was the senior adviser on housing for the White House’s National Economic Council.
The effort to provide more certainty to banks is just one of several policies the administration is undertaking. The FHA is also urging lenders to take what officials call “compensating factors” into account and use more subjective judgment when deciding whether to make a loan — such as looking at a borrower’s overall savings. 
“My view is that there are lots of creditworthy borrowers that are below 720 or 700 -- all the way down the credit score spectrum,” Galante said. “It’s important you look at the totality of that borrower’s ability to pay.”

It sounds like we need to know what actually happened in the 2000s.

14 comments:

Anonymous said...

http://www.youtube.com/watch?v=jSFLZ-MzIhM

Hey, the gay anthem.

carol said...

Jim Parrot...now there's an apt surname.

Luke Lea said...

For people with poor credit, why not rent? Reliable tenants are hard to find. Isn't that a way to build a credit score? Ought to be.

jody said...

maybe at some point they will make the mortgage application process almost as fuzzy and subjective as the college application process, and potential borrowers will also have to submit an essay in addition to their credit scores.

who could deny the nice gentleman asking for a $500,000 loan after reading about the perseverance he showed when his grandmother died last year. that essay gives him enough "points" in the application process to overcome his $30,000 a year salary and declared bankruptcy 5 years ago after racking up $20,000 in unpaid credit card debt.

rightsaidfred said...



Housing officials are urging the Justice Department to provide assurances to banks...that they will not face legal or financial recriminations if they make loans to riskier borrowers

Burn the village faster.

Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan...

Burn, baby, burn.

you’re leaving out of the market an entire population of creditworthy folks..said Jim Parrot

Well, Mr. Parrot, if there is money on the table, fell free to float all those wonderful loans yourself and rake in so much dough that you go blind.

Anonymous said...

History isn't going to repeat. This time it will be a little bit different. My impression is that the government is about to set up a far more insidious perpetual bailout machine through directly insuring the "vibrant" creditors. So this time, instead of embarassing crashes and huge accompanying single-shot bailouts, there will be a continual transfer of wealth to irresponsible creditors and banks straight from the treasury. The average rate of wealth transfer away from the middle class will be far greater this way.

So I'm also sure that leftists actually have learned their lessons from the recent crisis. Have we learned ours?

deconstructingleftism said...

I think it's pretty simple. Before the junk mortgages were sold to unsuspecting German pension funds or banks. When they proved worthless, the politically connected sold them to TARP or the Fed.

Now banks will make the loans, with the understanding many will be worthless. The good ones they will keep and make money on, and the worthless ones will be sold to the Fed. No one important or connected loses any money, quite the contrary their profits are guaranteed.

Derb's Mossberg said...

The traditional wisdom about people repeating mistakes of the past used to apply to people a generation or more later from the original event, who 'forgot' about a past event because they hadn't personally experienced the consequences that their ancestors had.

Nowadays, when it comes to the mortgage meltdown or anything else that rubs against a leftist taboo, we as a country are constantly stuck in the receiving the bad consequences mode because we are forbidden from learning from events even those which unfold again and again in the span of our own lifetimes.

Amused said...

Anon wrote:

"History isn't going to repeat. This time it will be a little bit different. My impression is that the government is about to set up a far more insidious perpetual bailout machine through directly insuring the "vibrant" creditors.

So this time, instead of embarassing crashes and huge accompanying single-shot bailouts, there will be a continual transfer of wealth to irresponsible creditors and banks straight from the treasury.

The average rate of wealth transfer away from the middle class will be far greater this way."


Answer:
Eh, you haven't paid attention.
The Obama administration is pressuring the banks, not the treasury. Come with hard facts instead of fact-free fabulations out in the wild.

Also, the Obama admin has been notoriously slow on the mortgage market. Geithner was always on the side of the Wall St banks. He allocated only 10 billion(basically peanuts) to the mortgage market but guess what? Most of that cash was never even used in a program. Now it's mostly too late to bail anyone out. It's all about loosing standards.

The administration has actually been under a lot of criticism even from centrists on this issue. Loosening standards is a terrible policy, but they are going this route because they are toothless. Obama is a lame duck. He can't get any program he wants through the GOP-controlled House so they're left to mildly threaten the banks.

But remember, what actually got the ball rolling last time was stamped federal legislation through Congress. There are very confined limits to what a WH can do. Obama and his minions can threaten the banks about being on the "black list" in case, you know "something bad would happen". But ultimately, they can't do much.

This move is poor policy but it's impact will be miniscule. Only when congress passes something huge will we see something substantial. The GOP won't give it to him. They got safe seats this entire decade. Even if a dem would win in 2016, they're still mostly lame ducks at the mercy of the GOP for their first entire term. By the 2020s, technological progress will be the major force to be reckoned with as we dispense climate change and move towards the solar-powered electric car future. We're already beginning to get there.

Keep voting GOP. Even if they have horrible policies. They can act as a restraint on the left. In the best case we get a divided government like now. The more dysfunctional Washington is, the better, generally. Less intrusion. When washington gets moving, things inevitably go bad.

And as I said, as long as Congress won't give Obama what he wants on domestic policy, including foreclosures, things are pretty safe.

Anonymous said...

Eh, you haven't paid attention.
The Obama administration is pressuring the banks, not the treasury. Come with hard facts instead of fact-free fabulations out in the wild


Read the article yourself. Its all there.

Deciding which borrowers get loans might seem like something that should be left up to the private market. But since the financial crisis in 2008, the government has shaped most of the housing market, insuring between 80 percent and 90 percent of all new loans, according to the industry publication Inside Mortgage Finance. It has done so primarily through the Federal Housing Administration, which is part of the executive branch, and taxpayer-backed mortgage giants Fannie Mae and Freddie Mac, run by an independent regulator.

As I said this time the government is taking care to make sure that a "crisis" doesn't happen again while making sure that the wealth transfer is not only continued, but intensified. As time goes on they'll find excuses to feed Fannie Mae and Freddie Mac a steady supply of moneys.

David said...

Jody said

> potential borrowers will also have to submit an essay in addition to their credit scores<

Pul-LEEZE stop giving them ideas.

Anonymous said...

Forget Faulkner, this is a farce fit for Waugh.

Dutch Boy said...

Although these policies are disastrous in general they are lucrative for those who know how to take advantage of the opportunities afforded by easy credit (the lucrative part means they can also afford to buy lots of political influence).

Anonymous said...

Niall Ferguson used to have some credibility but to get a gig at Harvard he had to notice that the refusal to lend money to blacks in Detroit was "racism" and not sound commercial judgement.