In December President Obama’s administration gave Countrywide a $335 million dollar fine for discriminating against minorities in its lending practices. The administration determined that from 2004 to 2008 they had not given out enough low interest loans to minorities. Did the mortgage company discriminate against minorities that were financially stable and ready to buy a house? Nope.
Via Fox News:
What the president sees as discrimination in awarding a mortgage, lenders saw as wise business decisions.
If a borrower can’t afford a down payment, Obama appears to view charging a higher interest rate as discrimination. Lenders also think that they shouldn’t treat borrowers whose sole source of income is welfare or unemployment insurance, the same as those applicants who have a job. But Obama, again, appears to view this as discrimination.
There is obviously a problem with no down payments: if the price of the house falls so that it is worth less than the loan, people will default and walk away. Similarly, when unemployment insurance or welfare runs out, borrowers might find they can’t keep paying their mortgage.
The Equal Credit Opportunity Act the Obama administration used to impose this fine was exactly what helped cause the mortgage crisis by forcing lenders to make risky loans that they didn’t want to make.
Yet, just last month, Obama put the blame for these risky loans going bad on banks for their “breathtaking greed” that “plunged our economy and the world into a crisis.”
It gets better:
It’s hard to believe that Countrywide, a leading lender of subprime mortgages, wasn’t already doing too much to make these risky loans. Indeed, it was the poster child for doing what the government wanted.
In 2002, Countrywide had adopted its “No Income/No Asset Documentation Program.” Borrowers could get a loan with just 5 percent down. The big government mortgage bundlers, Fannie Mae and Freddie Mac, bought these mortgages and encouraged Countrywide to expand the program. By the first half of 2006, almost two-thirds of Countrywide’s subprime loans had absolutely no down payment.
Obama is following the same housing policies of Presidents Clinton and Bush. Obama loves to attack Republicans for “wanting to return to the policies that got us in this mess.” Well, he must have forgotten main reason for the crash. If doesn’t matter if you fault the government or the mortgage companies for the housing bubble. There is one thing that we all can agree on. It was the masses of people that could not pay their mortgages that brought down this house of cards. It does not matter if the people knowingly took on too much debt, if the mortgage companies were “predatory” in their behavior, or if the government forced the hands of the companies. I for one find it hard to believe a company would give out a loan that they were unsure if it was going to be paid back, but it doesn’t matter. People were given mortgages that they could not afford and Obama wants more of it.
Who does Obama think he is to tell a private company what lending standards it should have? To make it worse, he does it all under the guise that banks are racist. If you don’t think that the housing market has had its lending rules dictated to them think again:
This is a world where the Federal Reserve told banks that the “outdated” criteria included:
Credit History: Lack of credit history should not be seen as a negative factor…. In reviewing past credit problems, lenders should be willing to consider extenuating circumstances. For lower–income applicants in particular, unforeseen expenses can have a disproportionate effect on an otherwise positive credit record. In these instances, paying off past bad debts or establishing a regular repayment schedule with creditors may demonstrate a willingness and ability to resolve debts…. Down Payment and Closing Costs: Accumulating enough savings to cover the various costs associated with a mortgage loan is often a significant barrier to homeownership by lower-income applicants. Lenders may wish to allow gifts, grants, or loans from relatives, nonprofit organizations, or municipal agencies to cover part of these costs. . . . Sources of Income: In addition to primary employment income, Fannie Mae and Freddie Mac will accept the following as valid income sources: overtime and part–time work, second jobs (including seasonal work), retirement and Social Security income, alimony, child support, Veterans Administration (VA) benefits, welfare payments, and unemployment benefits.
The housing bubble has caused legitimate human suffering (mostly the poor and middle class). People have lost their jobs and their homes as a result of these policies. We have all felt the second and third order effects of this. President Obama is essentially telling us the bubble should have been bigger. We should have had more poor people buy a house only to be thrown out of it. We should have had to bail out the housing market with more money. It’s no wonder that the economy refuses to improve with leadership like this in the White House.
[Image via flickr/anhonerablegerman]