Deja Vu All Over Again

Yesterday’s Washington Post posted an article stating that the Obama Administration is working toward making home loans available to people with weak credit in order to boost the economy. Wow. Just as the housing market is recovering from the sub-prime mortgages of the 1990’s, we are going to add a bunch of risky mortgages to the mix.

The article reports:

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.

Part of the problem here is the government’s intervention into the housing market. Banks should be left alone to make their own decisions on issuing loans.

The article further reports:

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.

It really is time to let the private sector be the private sector and shrink to government to a reasonable size.

Enhanced by Zemanta