Remember all the blame that was placed on Wall Street and the nefarious banks who preyed on people with low credit scores for the economic collapse that we have been struggling to overcome? Maybe some of you even remember the efforts under the Community Reinvestment Act where the government pressured (with possible fines) banks and leaning agencies to lend to a broader set of people, including those with lower credit ratings. Well, we have this in the Washington Post from yesterday:
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.
The Obama Administration claim that the recent housing recovery is “leaving too many people behind”. So they are encouraging 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.”
Doesn’t this sound familiar? Did we not learn anything from the issues leading up to the economic downturn?
Again, the Obama Administration through the Justice Department is promising banks that they will not face legal or financial consequences if they make loans to riskier borrowers who meet the government’s standards but default later. And who then is on the hook for the financial liability when they default?
The administration’s efforts come in the midst of a housing market that has been surging for the past year but that has been delivering most of the benefits to established homeowners with high credit scores or to investors who have been behind a significant number of new purchases.
Yes, and rightfully so. Why wouldn’t you deliver the most benefits to homeowners who have demonstrated sound fiscal practices? Are we out to punish that behavior because that is what it looks like to me. When the new round of low-credit-score people default and their liabilities are backed by taxpayer funds, some (maybe most) of those funds that come from people who have solid credit ratings and are practice sound financial behavior. So the message is: be smart with your money and pay your taxes and the government will let those who are risky and not contributing as much in taxes but reaping the benefits of home ownership use that money to help defray any impact of their irresponsible behavior.
Yes, this is going to go well.
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