Posted on 12/19/2010 8:32:46 PM PST by logician2u
My new special – Politicians’ Top 10 Promises Gone Wrong – airs again tonight. One of their failed promises is that if government fosters home ownership, that will benefit most everyone. President Clinton even claimed: “Our homeownership strategy will not cost the taxpayers one extra cent.” Bush was on board: “We want more people owning their own home. It is in our national interest.” Most politicians agreed. But those conceits, like so many others, went horribly wrong.
When the housing bubble popped and millions lost their homes many blamed greedy bankers. Senator Bernie Sanders complained that: “Outrageous greed, recklessness and illegal behavior on Wall Street caused the horrendous recession.” But economist Russ Roberts has it right when he points out that “greed has been around since about the Garden of Eden.”
The problem was that government made it harder for bankers to do the right thing. If a banker stayed with safe loans, he missed out on profit he could make selling lots of high-risk loans to Fannie Mae and Freddie Mac.
This chart from Roberts shows how Fannie and Freddie, at Congress’s urging, bought more and more loans with low down payments:
By 2005, 43 percent of first-time buyers got homes by putting no money down.
Another law that caused nasty unintended consequences, the Community Re-investment Act, allowed community groups like ACORN to pressure banks to loan money to people with dubious credit records. If the banks declined, their requests to merge could be denied.
Another group that pressures banks is called New Jersey Citizen Action. Executive director Phyllis Salowe-Kaye tells me on the show tonight: “We said to banks: ‘you have to make special products that are affordable to low and moderate income people particularly women and minorities’ … any bank merging… knows they have to come and talk to us.” A bank making loans has to come and talk community activists? Sounds like extortion to me.
Because the housing bubble hurt so many people, it is tonight’s politicians’ promise gone wrong number 2. Tune in at 9pm for number 1.
Bought my first home in 1998. The mortgage broker asked whether I could afford 20% down to get a "conventional loan." Wasn't entirely sure what it was at the time--but conventional sounded good--so I did it. No regrets.
Low interest rates spurred borrowers to borrow. If anything, it would have been a disincentive to lenders, had lenders actually been all that concerned about holding the notes to maturity. They weren't. They were being sold, divided into tranches and sold again. The lenders were profiting from fees and commissions for handling the transaction, not from the paper itself, which barely touched their hot little hands.
Poor credit risks were accepted and financed as a result of government pressure. The risk was not borne by the lenders so heck they didn't give a hoot, recall that they were profiting from fees and commissions, not from the note, which was promptly sold, right along with the risk.
The low interest rates were the result of high demand for treasuries from foreign nations, China for the most part, sending all their dollars back home to roost in treasuries, thereby driving down the yield of the ten year, to which mortgage rates are tied.
A true conservative has spoken. Good job.
I'm glad John Stossel's regular weekly programs are on the business channel which sticks to the announced schedule.
One more try in another hour and a half; this time I'll set it and forget it.
That’s why they want everyone’s IRAs and 401ks which ticks me off. I’m not rich, but it’s a decent sum of money at stake if they take it—enough to make me wonder exactly WHAT I would do.
Agreed! I watched the whole thing. Made perfect sense to me. What is it with the clueless in Washington? Why do we (collectively) vote these inept and dangerous people into office?
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