Is Another Mortgage Meltdown on the Horizon?

Federal officials are moving to enact wrongheaded policies that seem destined to create yet another mortgage crisis, housing expert Edward Pinto recently warned in the The Wall Street Journal.

The White House’s efforts to make mortgages more accessible are to blame, according to Pinto, co-director and chief risk officer of the International Center on Housing Risk at the American Enterprise Institute. 

“In the Obama administration, new guidance on housing policy invariably means lowering standards to get mortgages into the hands of people who may not be able to afford them,” Pinto wrote in his Jan. 27 WSJ piece.

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Specifically, he was referring to new guidance forthcoming from the Federal Housing Finance Agency, which has overseen Fannie Mae and Freddie Mac since 2008. The guidance—expected by the end of March—likely will mean reduced “guarantee fees” meant to cover the credit risk on loans guaranteed by Fannie and Freddie.

Fannie and Freddie face Congressional mandates to increase loans to people in lower income brackets, and they essentially compete with the Federal Housing Administration for this slice of the market. Therefore, the move to decrease guarantee fees can be seen as a response to the FHA’s potential lowering of annual mortgage premiums, according to Pinto. 

In the past, similar “price wars” among these entities—encouraged by realtor associations and “left-leaning” organizations such as the Urban Institute—ultimately loosened credit requirements far too much, Pinto wrote. The objective to enable greater homeownership might be praiseworthy, but the policies to achieve this have contributed to mortgage meltdowns. History appears to be repeating itself now, Pinto argued.

He urged Congress to intervene by eliminating affordable housing mandates and ensuring that the FHA meets capital standards that have been loosely enforced. 

Written by Tim Mullaney

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  • Ah come on. We all know how this works. If the policy looks like it is working at any point of time, then the President will take the credit while slyly smiling and insisting that it is the American people who really won but never denying credit for it either.

    Then when it goes wrong as it always seems to do, the President will be pontificating that it was because Congress failed to do this and that and the then current reincarnation of Barney Frank will be insisting he never called on fellow members of the House to lower qualification standards by proclaiming this or that while all of the time some producer at CNBC is holding some video segment showing the then Barney Frank doing exactly what he claimed he did not do in some emotional outcry during a full session in the House where not even the then Nancy Pelosi will be able to deny it occurred although some member like the then current version of John Conyers just might try.

    And who says history does not repeat itself? Ah the joys of being liberal.

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