Two Obama-era holdovers are stupidly creating conditions for another housing meltdown
Two bureaucrats who were originally appointed by President Obama are "sowing the seeds of another subprime collapse," according to New York Post columnist Paul Sperry.
Democrat Mel Watt, who is serving a special five-year term as head of the Federal Housing Finance Agency, is pushing the mortgage-lending giants he regulates – Fannie Mae and Freddie Mac – to offer home loans to deadbeat borrowers with shaky credit, setting up conditions for another housing-market crash, industry officials warn.
Meanwhile, the other Obama holdover – liberal Democrat Richard Cordray, who continues to head the Consumer Financial Protection Bureau through 2018 – has launched an unprecedented crackdown on credit reporting bureaus for allegedly widespread errors and bias, leading the industry to strip some negative information from credit reports used by home lenders, which analysts fear could blind them to default risks.
"We are dumbing down the requirements all over again," warned former chief Fannie credit officer Ed Pinto. "It’s getting very dangerous."
Credit scores of approved borrowers, for example, already have been trending down, even as their debt levels have grown, according to Ellie Mae, a leading mortgage data firm. And the Office of the Comptroller of the Currency recently warned: "This easing trend over the past three years is similar to the degree of easing in the years preceding the 2008 financial crisis."
Watt, a former Congressional Black Caucus leader, has been demanding Fannie and Freddie ease credit standards – just as the feds did starting under President Bill Clinton, in pursuit of the same goal: "to help African-Americans achieve the goal of homeownership," as Watt declared in a recent speech in New Orleans.
In his remarks, the former North Carolina lawmaker, who once demanded Freddie back home loans for welfare recipients in his district, urged underwriters to increase "flexibility" when qualifying low-income blacks to help overcome historic discrimination.
"The truth is that the egregious historical forms of housing discrimination, such as racially restrictive covenants and overt racist attitudes, have largely given way to other intractable obstacles that negatively impact African-American homeownership," Watt said.
One of those "obstacles," he argues, is down-payment requirements: "Perhaps the most difficult challenge many African-Americans face in obtaining a mortgage [is] the lack of down payment."
So now, borrowers need only put 3 percent down to get a Fannie-backed loan – even if the down payment is a gift. Fannie also has started up a new subprime lending program. Such loans were blamed for plunging millions of minorities into foreclosure in the last housing crisis.
This astonishing stupidity was bound to happen because there was very little "reform" of the system following the crash in 2007. We were told the Dodd-Frank Act would prevent such a crisis in the future when the law was passed in 2010. It did no such thing, and now conditions are ripe for another meltdown.
There was more to the 2007 crisis than poor people getting mortgages they couldn't afford. Mortgage-backed securities lost their value when the housing market collapsed, resulting in trillions of dollars of losses for the big banks and companies like AIG. Might we be headed for a similar collapse today?
There is no housing bubble as there was in 2007, but it's only a matter of time before the casino gamblers on Wall Street precipitate another crisis. That two Obama-era bureaucrats are playing a large role in creating the conditions for another credit crunch highlights the necessity for President Trump to clean house and pick up the pace of hiring Executive Branch employees.