Heading for another mortgage meltdown?

Even the lowliest slug is capable of learning. So, you begin to wonder about our government that is setting up conditions strikingly similar to the witches brew of political poison that led to the mortgage meltdown in the fall of 2008.

An IDB editorial explains:

The Obama administration says it wants to "reform" Fannie and Freddie. But it won't propose legislation to revamp the mortgage companies until next year, if even then. And in testimony last week, HUD Secretary Shaun Donovan circled the wagons around the "affordable housing mandates" that pushed Fannie and Freddie into the risky subprime market.

"As we work to reform our housing finance system, it is essential to keep in mind our broader housing policy goals," he said. "A reformed housing finance system should ensure broad access to mortgage credit for minorities." Here we go again.

Fannie and Freddie over the decades have facilitated "an important democratization of credit," Donovan said. Yes, and they're now hit hardest by foreclosures from this failed social experiment.

Never mind that. Donovan asserted that "ensuring that homeownership opportunities are available to members of these communities should remain a priority."

It's plain that Donovan, like other housing-rights activists, has not learned any lessons from the subprime scandal. He's also in denial about HUD's role in it, arguing that the affordable housing goals it foisted on Fannie and Freddie were not the cause of their collapse.

Rather, he claims, the mortgage giants underwrote risky subprime loans and securities simply to increase profits.

But officials with both firms swear their hands were forced by HUD. They testified they had to lower their underwriting standards and absorb substantial costs to meet HUD's political mandates. That, of course, is no way to make a profit.

In fact, HUD in 2000 required Fannie and Freddie to underwrite fully half of their mortgages for lower-income, higher-risk borrowers - a quota that remained in effect for the rest of the decade.

Coupled with the lack of reform in the derivatives sector that led to the big banks slicing and dicing mortgage securities into ever smaller pieces that eventually caused the bottom to fall out of the market, we are in a situation where nobody learned anything from the past.

Only this time, we simply don't have trillions of dollars to bail everybody out.

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