Tags: housing | bubble | loans | banks

Obama Planting Seeds for Another Housing Market Crash

Wednesday, 03 Apr 2013 02:48 PM

By Glenn J. Kalinoski

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The Obama administration may be laying the groundwork for another housing market crash by making home loans available to borrowers with weaker credit.

The Washington Post reported that housing officials are asking the Department of Justice to assure banks they will not have to worry about financial or legal consequences should they lend to riskier borrowers who measure up to government standards and later default.

The officials also are looking to expand opportunities for homeowners who are under water on their mortgages to refinance and to have lenders “use more subjective judgment” in offering loans.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

“There’s always a tension that you have to take seriously between providing clarity and rules of the road and not giving any opportunity to restart the kind of irresponsible lending that we saw in the mid-2000s,” a senior administration official, who wasn’t authorized to speak on the record, told The Post.

Before the housing crisis, about 40 percent of homebuyers were first-time owners, according to the National Association of Realtors, but the level has fallen to 30 percent.

“If you were going to tell people in low-income and moderate-income communities and communities of color there was a housing recovery, they would look at you as if you had two heads,” John Taylor, president of the National Community Reinvestment Coalition, told The Post. “It is very difficult for people of low and moderate incomes to refinance or buy homes.”

Federal Reserve Governor Elizabeth Duke said that new home purchases fell 30 percent for those with credit scores above 780, while dropping 90 percent for those with scores between 680 and 620, according to The Post.

“If the only people who can get a loan have near-perfect credit and are putting down 25 percent, you’re leaving out of the market an entire population of credit-worthy folks, which constrains demand and slows the recovery,” said Jim Parrott, a former senior advisor on housing for the White House’s National Economic Council.

The government insures 80 percent to 90 percent of all new home loans.

Under Federal Housing Administration (FHA) rules, borrowers can get a mortgage with a credit score as low as 500 or a down payment as small as 3.5 percent, according to The Post. In the event of a default, taxpayers “are on the line, a guarantee that should provide confidence to banks to lend.”

However, banks are rejecting low scores, with the average on FHA loans at about 700, and under some situations, the FHA can retract insurance or take legal action penalizing banks in the event of a default, The Post stated.

“Fed-fueled cash pouring into the real estate market is pricing out middle- and lower-income buyers,” The Washington Examiner stated.

For example, in Phoenix, an area hurt badly by the housing market crash, 25 percent of the region’s homes are owned by investors, The Arizona Republic reported.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

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