Yesterday The New York Post reported that the Obama Administration is making the same mistakes that led to the housing market collapse of 2008. One of the major causes of the economic collapse of 2008 was the amount of money borrowed for housing loans that was not going to be paid back. There were a number of causes of the problem. The economy had been good for a while, interest rates were reasonably low, people had moved into bigger houses, and banks were pressured to give loans to people with questionable credit and unsubstantiated income. As gasoline prices doubled, many of the people who had taken out loans that were on the edge of their ability to repay found themselves unable to make the payments. The banks, in turn, sold those mortgages as if they were going to be paid back, and they were not paid back. The YouTube video Burning Down the House provides one of the best explanations of the cause of the 2008 collapse that I have seen. I am posting it here in case YouTube takes it down:
That was then, but where are we now?
As Paul Sperry recently noted in The Post, Team Obama has pushed mortgage lenders to offer home loans to folks with shaky credit, setting up conditions for another housing-market collapse.
Wasn’t the last one bad enough?
Credit scores of approved borrowers, for example, have been trending down, even as their debt levels have grown.
The Federal Housing Administration and government-sponsored “independent” lenders Fannie Mae and Freddie Mac have been demanding lower credit standards — just as the feds did starting under President Bill Clinton, in pursuit of the same “affordable housing” goal.
Some borrowers need only put 3 percent down to get a Fannie Mae loan — even if the downpayment is a gift. Fannie also has started up a new subprime-lending program.
The Office of the Comptroller of the Currency recently warned that mortgage underwriting standards have slipped and now reflect “broad trends similar to those experienced from 2005 through 2007, before the most recent financial crisis.”
When the economy and housing prices turn south again, a lot of these loans will go bad, just as they did last time.
The writer of the article states that he doesn’t believe the loans will cause a worldwide problem this time because the banks have learned their lesson. He does point out, however, that a large portion of housing loans made in America are government insured. That means taxpayers will be on the hook this time (I thought we were the last time). Hang on to your hats. Here we go again.