It's been two years since the taxpayers bailed out Fannie and Freddie. Unfortunately, Thanks to Obama and the Dems we are going to have to do it again. The root cause of the first Subprime crisis was weak lending standards serving the goal of affordable housing for all. The rate of homeownership NOW is the same as it was in 1993 before Clinton and Andrew Cuomo "liberalized" lending standards. Congress gladly went along. We went from 1990 when one half of 1 % of all government insured home purchase loans had down payments of 3% or less. By 2003 it was over 14% and by 2006 about 1/3 were no money down.
Under Cuomo and the Clintonistas at Fannie and Freddie borrowers no longer needed down payments; steady incomes ; verified employment and a good credit history. This also inflated housing prices by creating artificial demand. This was done despite the lesson of 1929 when any invesor could buy stock with as little as 10% down. After the crash it was raised to 50%. One would think that the Congress would apply the same principles now.
Part of the reason for Congressional failure is political : Cheap housing wins votes and part of the paradigm includes the home mortgage interest deduction. It's no accident that our next door neighbor Canada did NOT experience a housing crash.
They maintained their lending standards and do not have a mortgage interest deduction.
Part of the blame falls on the media for perpetuating the prevailing narrative that our troubles were caused by a greedy private sector and/or greedy execs at Fannie and Freddie and/or insufficient regulation.
Amazingly Obama and the Dems refuse to reinstitute sound underwriting to home lending. The Dodd - Frank bill which Obama signed omitted down payment requirements and did not require a good credit history. The Corker Amendment which would have required both was defeated. Worse yet , the regulator of Fannie and Freddie , the Federal Housing Finance Agency folllowed the 2008 Congressional mandate and just laid out its Federal affordable housing goals and guidelines. Incredibly these new goals relate almost exclusively to very low and low income borrowers. Read that last sentence as many times as necessary until cold sweat and nausea set in. The ONLY way to meet those goals is to let those people borrow money; the repayment of which is Federally guaranteed. That means low (and maybe even no) down payments and lousy credit histories.
I gather that Congress seriously thinks that reining in "predatory" lenders will be sufficient to prevent bad lending.
This is nothing more than a recipe and blueprint for a repeat disaster. The only way to avoid it is to require 20% down with solid credit and verified documentation. The easiest way to get Congress to do that is to invest all Congressional pension assets in funds backed solely by the very high risk loans mandated by the Congress.



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