Most of the reason for the housing crash was 20 years of lowered mortgage lending standards legislated by the government.
Things got to the point where people were able to get mortgages without showing their income. They got “liar loans” aka loans without documentation.
Now Obama wants to open up the mortgage refinance program to people who won’t have to prove their financial bona fides.
So who’s going to hold the bag on these new liar loans? Fannie Mae and Freddie Mac. Subsidizing them to the tune of $150 billion will seem like chump change when compared to the final bill.
The very policies that got us into this housing mess are now going to dig it deeper.
The CSM says: Under the plan, owners with “underwater” mortgages that are also government-supervised will not need to reveal much about their credit worthiness, job security, or other personal information in order to refinance those loans.
Sound familiar? It should.
During the housing bubble, many borrowers obtained mortgages without disclosing critical financial details. Jobs were plentiful then and lenders assumed home prices would keep rising. If someone hid negative information or lied about their prospects of paying down on a mortgage, the risks were largely ignored and passed on to Wall Street investors.
But after that widespread lack of honesty and integrity was exposed in 2007-08, the bubble burst. Will a return to the old ways of lending without much documentation now be a solid basis to boost the economy?
Hardly. Even under the current federal mortgage-modification programs, more than half of those granted new loans were back in default within six months. And those loans were negotiated under strict credit standards, not the loose rules coming from the Obama administration.
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