Comment

Obama’s call for looser lending could lead to another mortgage crisis

August 13, 2013 

President Obama is calling for more “reasonable” rents and “creative” ways for banks to finance mortgage loans all in the name of “affordable” housing. The three expressions in quotes have one thing in common: They are all euphemisms.

Euphemisms are words or expressions that have benign literal meanings that mask the true intent of the speaker or writer.

The president calls for “reasonable” rents. The fact is, no one is advocating unreasonable rent. Rents are set in the market place and, as with most prices, are the product of supply and demand.

What the president really seeks are rent subsidies for his favored classes so that their rents will be no more than an arbitrary percentage of gross income.

The president calls for more “creative” mortgage lending. This is a first cousin of “flexible” mortgage lending. Creativity is admirable, and our society has come to expect the next big thing to be the product of people who think outside the box. Creativity in mortgage lending, however, is a cancer from which our economic system and the housing industry is only now recovering since the housing bubble burst 2006-2008.

Some say that it all started with the Community Reinvestment Act signed into law by President Carter in 1977.

By the mid-’90s, regulators imposed quotas on banks to extend minimum percentages of mortgage loans to low- and moderate-income families, and the Department of Housing and Urban Development pressured Fanny Mae and Freddie Mac to set a target of 42 percent for the number of mortgage loans to people with incomes below the median in their area.

In a word, the mortgage industry had to get more “creative.”

If only it had ended there.

Wall Street created mortgage-backed securities that were very profitable and required the mortgage industry to supply more mortgages to fuel the greed.

The mortgage lenders took their cue from the government and added to the level of creativity to produce “liar” loans. The government has brought a lawsuit against Bank of America alleging reckless lending, such as a loan of $744,000 to a self-employed house cleaner who had claimed an annual income of $753,000 that was never verified.

This happened because neither the borrower nor the lender had any skin in the game. The borrower made no down payment, and the lender flipped the loan to investors and made all of its money in the fees and commissions generated by the transaction.

This is the path that the Community Organizer in Chief wants our country to take because this time, of course, it will be different. Don’t believe it.

Then we have one of the granddaddies of euphemisms: “affordable” housing.

Instinctively, we all know what we can afford for housing. For a high school dropout, it is likely the bedroom he already occupies in his parents’ house. For Bill Gates, it is any property he fancies on the planet.

In his 2009 book “The Housing Boom and Bust,” Thomas Sowell defined the political meaning of affordable housing as allowing people to choose their housing and then the government somehow making it possible for them to have it.

I would not be quite as genteel. Every time I hear the expression “affordable” housing, I feel a tug on my wallet as yet another group of individuals appeals to the redistributive instincts of politicians to use government powers of confiscation to subsidize a level of housing they could not afford on their own.

The real estate market seems to have found a floor and to be coming back to life. Home values have risen, sales are up and builders can get back to work. This is not the time to go back to practices that brought our country to the edge of the economic precipice.

Contributing columnist Marc Landry can be reached at marclandry49@gmail.com.

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