Obama administration: This recovery is slow, so let’s repeat the mistakes of the Great Recession!

Forget about banks being Too Big to Fail — or, per Attorney General Eric Holder, Too Big to Jail. As the Obama administration tries to restart some of the same bad decision-making that created the last housing crisis, any banks coerced into re-inflating a housing bubble may be able to say the system was Too Rigged for Them to Fail/Be Jailed. From the Washington Post:

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.

President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.

Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps. (emphasis added)

So, when the next housing crash occurs, and Americans wonder why people at the heart of it aren’t being prosecuted, try to remember it’s because they were effectively granted immunity.

Now, I have no doubt whatsoever that young people and Americans with bad credit ratings are struggling to buy houses right now. For the former, could the fact that many of them bear mountains of college-loan debt have anything to do with their difficulty in getting banks to lend them even more money? For the latter, isn’t a bad credit rating supposed to be reason you don’t get a mortgage?

I also have no doubt whatsoever that people who are in these situations face a longer, more difficult path to prosperity than those who are not. Nor do I doubt that some — though surely not all of them — find themselves in these situations through little or no fault of their own. I’m thinking in particular of people who lost their jobs in the recession, were unable for months or years to find another one due to the tepid recovery we’ve experienced, and had to rely on — and eventually ruin — their credit to stay afloat in the meantime. Others, of course, ended up in dire straits because of decisions they made. Either way, these are problems with broad economic consequences that shouldn’t be ignored or taken lightly.

That said, jeopardizing the housing market and home values for all Americans is an especially dangerous way to address these problems. It’s treating a symptom of the underlying problem. And it’s all the more egregious because it repeats so many of the mistakes we’ve been lamenting — and paying for — the past five or six years. Not to mention that existing FHA-backed loans are already believed to be under-capitalized and run the risk of a taxpayer bailout that could rival those of GM and Chrysler.

– By Kyle Wingfield

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189 comments Add your comment

Bruno

April 3rd, 2013
11:19 am

The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.

I can only hope that some of these Libs will wake up to the fact one day that you can’t ignore economic fundamentals and expect a good result.

Common Sense

April 3rd, 2013
11:20 am

Yes…let’s keep trying to take shortcuts to prosperity.

Kyle Wingfield

April 3rd, 2013
11:21 am

A shortcut is exactly what this is, Common Sense.

Retired Soldier

April 3rd, 2013
11:24 am

Continued irresponsibility by this administration.

Deep Cover

April 3rd, 2013
11:25 am

The initial loans and the defaults didn’t cause the great recession. The leveraged bets on derivatives from mortgage backed securities caused the crash. It is OK to loan the money on a 1:1 ratio. There is plenty of money (read: bank profits) to cover any losses (plus the money actually gets to people who grease the wheels of the economy instead of excessive bonuses to the top 1%).

Once again, your comments are TOO SIMPLISTIC and do not accurately reflect current nor historical events (typical for the partisan slant of your column).

Finn McCool (the system isn't broken; it's fixed)

April 3rd, 2013
11:28 am

follow the money. Who is going to benefit the most from opening these gates?

Kyle Wingfield

April 3rd, 2013
11:31 am

Deep Cover: Yes, it’s much less simplistic to blame the whole thing on a financial instrument that existed before and since without triggering financial panics.

Retired Soldier

April 3rd, 2013
11:32 am

Deep-

Bank profits are for the purpose of paying off bad home loans? You are kidding aren’t you. I suppose car company profits are to be used to pay for bad car loans.

What is your profit supposed to pay? (income-expenses=profit) Are you equaly free with your profit?

Finn McCool (the system isn't broken; it's fixed)

April 3rd, 2013
11:34 am

The question is – are the issues resolved that led to the crisis – collusion between banks and rating agencies, selling of packaged loans by use of fraudulent methods, etc.

Kyle Wingfield

April 3rd, 2013
11:36 am

Finn: It seems to me that telling banks they won’t be held responsible for making bad loans is exactly one of the things that led the banks to make all those bad loans the last time around.

Retired Soldier

April 3rd, 2013
11:37 am

Finn-

Don’t know about collusion but I agree the packaging left much to be desired. This problem was primarily created by the Feds pushing lenders to make risky loans. Now it appears we are going to do it all over again.

Retired Soldier

April 3rd, 2013
11:37 am

Exactly Kyle.

Kyle Wingfield

April 3rd, 2013
11:38 am

The difference is that last time, the lack of responsibility was implicit. This time, it’s explicit. Even worse.

Retired Soldier

April 3rd, 2013
11:39 am

Matz

April 3rd, 2013
11:41 am

Mr. Wingfield, as someone who is VERY interested in the state and direction of home values, I would like to see more information in this column. Your extensive commentary appears to be hinged entirely on the mostly-debunked notion that the sole cause of the housing cliff dive was that government “forced” banks to make home loans to unqualified buyers.

The commentary is then supported by a single article in the Washington Post, which — from what I can tell — is largely un-sourced, citing only “administration officials” doing vague things like “encouraging banks to….” I tried to follow the article’s trail back to something tangible, and all I could find was the same continued push for loan modification for those whose under water mortgage status was largely due to the rapid and severe drop in values.

If I am going to be scared, outraged, or even miffed (as implied in the tone of this column), I’m going to need something more tangible to go on than the daily “here’s why we’re miffed at Obama” bread your readers crave. Thank you so much!

Kyle Wingfield

April 3rd, 2013
11:45 am

Matz: Where in this piece did I say it was the “sole cause of the housing cliff dive”? Are you in favor of repeating mistakes, so long as we only repeat some of them? Or are you arguing that making home loans to unqualified buyers had nothing to do with the housing crash?

Cheesy Grits is gone but not forgotten

April 3rd, 2013
11:52 am

Sounds like a rehash of the Freddie Mae / Mac Myth

Most of the loans that went belly up last time had nothing to do with the government pushing lenders to do this or that. I think they were only responsible for about 6 percent of them.

Bankers just got greedy and got burned.

Deregulation is far greater culprit.

Cheesy Grits is gone but not forgotten

April 3rd, 2013
11:53 am

Are you in favor of repeating mistakes, so long as we only repeat some of them?

No. It would just be nice though if you focused on 94 percent of the problem instead of 6 percent of it.

But i guess its easier to go after Obama and poor people he might be trying to help.

Don't Tread

April 3rd, 2013
11:54 am

Nothing good ever comes out of relaxing sound standards. People who habitually don’t pay their bills on time (whether they see that as “sticking it to The Man” or not) should not get a loan for anything. Let them rent*.

* – rent from someone else. I won’t rent to them.

Cheesy Grits is gone but not forgotten

April 3rd, 2013
11:55 am

I tried to follow the article’s trail back to something tangible,

I doubt you find anything either.

Its called the Echo Chamber.

It gets started over there and then seeps into ” legitimate ” conservative media.

Drudge is famous for this kind of stuff.

Lynn

April 3rd, 2013
11:57 am

Regulation, regulation, regulation! How is it that other financial crisis’ that have occurred were responded to with regulation (i.e. Enron and the Sarbanes-Oxley Act) but still the U.S. banks have been able to avoid stricter regulation with lending. The EU is at least entertaining the idea of stricter regulation on loans.
As far as the Obama administration goes, when will they realize (along with many American citizens) that not everyone in the U.S. NEEDS to own a home. Other countries respect this concept, but for some reason the U.S. feels that people with little or no down payments and poor credit should be “allowed” to live the American dream. The problem is that no one seems to remember what the true American dream was. Working multiple jobs, saving every penny, and then being able to buy your first home with a down payment. In addition, these homes were not 1,000’s of square feet and did not have pools in the back yard, but simple homes to raise their families that they could afford to pay off.
The large banks and the banking executives are off to the races again and I fear that the middle and lower classes will take the hit, causing the disparity between the rich and others to grow even more in the U.S. Will we ever learn?

Retired Soldier

April 3rd, 2013
11:57 am

Cheesy-

Are a lender or a real estate agent? If not you really don’t have a clue. Yes some banks got greedy, or got caught up in the real estate boom and over extended themself. Being in that business, the loans that were approved because there wasn’t a risk to the lender was seriously flawed. When you could get a 250k home loan with no proof of income and extremely low credit scores, something is seriously wrong.

Cheesy Grits is gone but not forgotten

April 3rd, 2013
11:59 am

* – rent from someone else. I won’t rent to them.

There are consequences of having bad credit. I dont think anybody would argue otherwise.

But it shouldn’t be a death sentence either. It can take years to recover a bad rating for a mistake made when someone was much younger and much more immature.

I know from experience.

Home ownership is part of the American dream. We should keep that door open as wide as possible. We know people who own their own homes are more stable and their kids tend to do better in school. We should encourage that as much as possible.

Cheesy Grits is gone but not forgotten

April 3rd, 2013
12:00 pm

Yes some banks got greedy, or got caught up in the real estate boom and over extended themself.

That is exactly what I said.

Retired Soldier

April 3rd, 2013
12:05 pm

Cheesy-

Why shouldn’t we go back to such a system? Because this country can’t afford the losses. 16.7 trillion in debt. The gravey train, federal spending, has to be reduced. We can’t continue to add over a trillion in debt every year. Think Stockton, CA.

Dumb and Dumber

April 3rd, 2013
12:06 pm

I know, let’s start a war with Iran but not include the costs in our budget. I’m sure that all the oil revenues we get will more than offset the costs of the war. We’ll make a profit!

It worked great for that Iraqi war thing.

Kyle Wingfield

April 3rd, 2013
12:08 pm

Fannie and Freddie were responsible for either 6% of the mortgages outstanding in America or half of them, depending on who you listen to: Cheesy’s thoughts or the facts.

That said, I have never claimed Fan and Fred — or any one culprit — are solely to blame. But it is safe to say the housing crisis could not have reached the scale it did without their participation.

Dang!

April 3rd, 2013
12:08 pm

Why on earth we would make it easier for young people to go farther in debt escapes me. Most young people get out of college with a huge burden, courtesy of the government, and we immediately try to double down and saddle them with a mortgage. It’s really quite stupid, and teaches a horrible lesson.

Retired Soldier

April 3rd, 2013
12:09 pm

Dumb-

Did Obama include the wars in his budget? Opps, a budget has never been passed since he became president. Guess your point is moot.

bluecoat

April 3rd, 2013
12:10 pm

Part of the American dream,puts you in position to fatten the insurance companies,and feed the ever,feeding at trough state,county,city politicans,and employees by taxation,and fees.

@@

April 3rd, 2013
12:22 pm

I read about this “GREAT” idea over a week ago. INSANITY!

When Bush promoted his homeowner society, I thought it a good thing. It was the liberal in me. In hindsight it was a disaster. Now with “foresight” Obama follows in Bush’s footsteps.

The ship is adrift with holes in the bottom….bail….Bail….BAIL….

and then bail some more.

Social engineering promotes cannibalism. Let us do it more SWIFT-ly while we still have meat on our bones.

Finn McCool (the system isn't broken; it's fixed)

April 3rd, 2013
12:24 pm

poor people

folks, risky borrowers does not equal poor people. While most poor people are risky borrowers, most risky borrowers are not poor. If you dig through the data I think you will find most of these borrowers are middle class who qualify for the “subprime category” of loans.

Matz

April 3rd, 2013
12:25 pm

Mr. Wingfield, thank you for your response. Of course you know that home buyers who borrowed more than they could afford were only a fraction of the big picture!! I did not mean to imply that you were obtuse to that fact.

As you know, there was no government edict that mandated loans to unqualified applicants. Nothing that forced bankers to lend $400K to those who qualified for only $120K, or even $120K to those who could only afford $60K.

That’s why I’m wondering what specifically I should be worried about and how it affects my equity. The article you cite is vague. If I’m going to react, I would very much like to know the the details before I dump another load of cash into upgrades and maintenance. Thanks!

Tiberius - pulling the tail of the left AND right when needed

April 3rd, 2013
12:29 pm

“President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.”

I’m sorry, but did I miss seeing all those people living in the streets and woods without a roof over their heads the last time I drove any distance?

Are the homeless shelters full to the brim with people because they can’t find a place to rent?

When did this disaster happen? :roll:

Finn McCool (the system isn't broken; it's fixed)

April 3rd, 2013
12:30 pm

Opps, a budget has never been passed since he became president.

He can create budgets till the dogs come home but this Republican House isn’t going to pass anything. What is your solution to that?

breckenridge

April 3rd, 2013
12:31 pm

Home ownership is a privilege, not a right. It needs to be earned, not given.

The failure that is Dodd-Frank could have and should have contained two key features; 1) All potential home buyers must be able to come up with a 20% down payment and 2) All lending institutions must maintain ownership of at least 25% of each home loan for the duration.

Is that excessive regulation? I think not but if it is so be it. But it would have eliminated the possibility that taxpayers would be once again asked to bail out the banks.

JF McNamara

April 3rd, 2013
12:31 pm

I agree.

This is a terrible idea and just plain stupid. How about, for once, America rewards the responsible people? If you want to reward someone and get the economy moving, eat some of the money on underwater homes. How about this:

You receive credit for 25% of your home value if you:

1. Owned your home before 2008
2. Never missed a payment
3. Have credit and a salary that allows you to move into a more expensive home

This way, all of the losers who have bad credit can get the homes left behind at a cheaper price and those who had to buy homes for their families during the bubble and have struggled throughout this mess finally get rewarded. You would still expand the economy quicker, you would restore the natural balance of upward mobility, and you wouldn’t be rewarding irresponsible people.

Oh yeah, I forgot. I’m responsible. No one will ever do anything to help me. This whole issue just infuriates me. The only people who are still screwed by this crisis are the ones who did everything right but had bad timing.

Tiberius - pulling the tail of the left AND right when needed

April 3rd, 2013
12:32 pm

“As far as the Obama administration goes, when will they realize (along with many American citizens) that not everyone in the U.S. NEEDS to own a home. Other countries respect this concept, but for some reason the U.S. feels that people with little or no down payments and poor credit should be “allowed” to live the American dream. The problem is that no one seems to remember what the true American dream was. Working multiple jobs, saving every penny, and then being able to buy your first home with a down payment.”

Post of the day, Lynn! Hat’s of to you!

(however, don’t just put the blame on President Incompetent. Bush also mistakenly tried to artificially increase home ownership as well)

Finn McCool (the system isn't broken; it's fixed)

April 3rd, 2013
12:32 pm

there was no government edict that mandated loans to unqualified applicants.

exactly. The cons confuse “unqualified” with “poor”.

Tiberius - pulling the tail of the left AND right when needed

April 3rd, 2013
12:34 pm

“He can create budgets till the dogs come home but this Republican House isn’t going to pass anything.”

Neither can his Democrat-controlled Senate, Finn (at least not one of President Incompetent’s submitting). What’s your solution to THAT?

Kyle Wingfield

April 3rd, 2013
12:35 pm

But even those figures don’t tell the whole story, Cheesy. Fannie’s portfolio had a higher share of loans considered subprime than did the broader market; it wasn’t until the end of the housing bubble that the broader market caught up. When the broader market did catch up, it was because Fannie and Freddie were buying some 40 percent of the privately issued securities backed by subprime mortgages — more than doubling the the amount of these subprime MBSs they bought between 2003 and 2004 alone.

The more of these securities Fan and Fred bought, the greater the supply of them from private lenders. And the greater the number of these MBSs the private lenders themselves kept, to make themselves appear healthier than they were (by holding overvalued assets that were riskier than anyone wanted to admit).

So, yeah, Cheesy, Fan and Fred had quite a bit to do with the bad decisions being made.

Tiberius - pulling the tail of the left AND right when needed

April 3rd, 2013
12:36 pm

“But it is safe to say the housing crisis could not have reached the scale it did without their participation.”

TESTIFY! :D

Finn McCool (the system isn't broken; it's fixed)

April 3rd, 2013
12:37 pm

the U.S. feels that people with little or no down payments and poor credit should be “allowed” to live the American dream.

read as: unqualified, not poor. Even a millionaire can be unqualified for, say, a $5 million home but be perfectly qualified for a $1 million home. Bankers were stretching the rules (or creating new rules) to allow the guy to qualify for the one he couldn’t afford.

Tiberius - pulling the tail of the left AND right when needed

April 3rd, 2013
12:38 pm

“As you know, there was no government edict that mandated loans to unqualified applicants.”

Yeah, ’cause holding any bank’s Federally-approved expansion isn’t technically an “edict”. :roll:

Finn McCool (the system isn't broken; it's fixed)

April 3rd, 2013
12:42 pm

What % of the US population is poor and what % is considered middle class?

Which of those two population segments has the most access to credit?

If you do the math and still think it was poor people who caused this world-wide crisis then there is no helping you.

LDH2O

April 3rd, 2013
12:42 pm

Really it comes down to”who meet government standards.” In the past banks were guilty of fraud in providing loans without income verification, inflating appraisals, etc. Now all they have to do is actually follow regulations and laws to stay out of trouble – and people have a problem with that???

Rafe Hollister

April 3rd, 2013
12:42 pm

Some observations

The left is having a hard time justifying Barry following the same ideas he so thoroughly trashed before.

So now, Progs question the validity of the article in that left wing rag, the WaPo, who we all know are out to smear the Obama regime, right?

The problem with the young acquiring homes has more to do with their lack of a job or a professional job, than any home credit crisis.

Obama was going to focus like a laser on job growth, what happened?

For selfish reasons, a good boom/bubble in housing prices would help me unload a white elephant, but would again be bad for the country. Another quick fix that will have more unintended consequences that “Cash for Clunkers”. Obama is like a bad 33 rpm record stuck in the same groove, around and around, making noise, but not actually accomplishing anything.

Decatur Guy

April 3rd, 2013
12:45 pm

Well, looks like the brain dead left is still in denial. No wonder our country is going broke. These clowns have no idea how a checkbook works.

Hey, let’s print more money…that’ll fix it.

Finn McCool (the system isn't broken; it's fixed)

April 3rd, 2013
12:46 pm

Now all they have to do is actually follow regulations and laws to stay out of trouble

That’s the question. As can be seen in the toothless approach to the bankers and their trail of proven fraud, the Obama administration won’t do a thing to keep the bankers in check and lending in a way that won’t cause the taxpayers eventual harm.

LDH2O

April 3rd, 2013
12:48 pm

Kyle: ‘ It seems to me that telling banks they won’t be held responsible” is a straw man position. The government never said they won’t be responsible, it said they won’t be responsible for legal or financial consequences from the government if they follow the law. The banks will still have consequences to profits for making bad loans – that is free market and that is what is happening here. Face it, the government is NOT advocating returning to previous Republican administration policies where banks were not held accountable for fraudulent loans; all that is happening here is that the government is saying that if the law is followed, banks won’t be hunted as witches.