By Steve Sailer
04/03/2013
Lately, I've been posting summaries of academic research into the true nature of the mortgage meltdown of a half decade ago. I realize that sounds like ancient history of no relevance, but from today’s Washington Post:
Obama administration pushes banks to make home loans to people with weaker credit
By Zachary A. Goldfarb, Updated: Tuesday, April 2, 5:48 PM
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. …
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. …
“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,” said John Taylor, president of the National Community Reinvestment Coalition, a nonprofit housing organization. “It is very difficult for people of low and moderate incomes to refinance or buy homes.”
“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 creditworthy folks, which constrains demand and slows the recovery,” said Jim Parrot, who until January was the senior adviser on housing for the White House’s National Economic Council.
The effort to provide more certainty to banks is just one of several policies the administration is undertaking. The FHA is also urging lenders to take what officials call “compensating factors” into account and use more subjective judgment when deciding whether to make a loan — such as looking at a borrower’s overall savings.
“My view is that there are lots of creditworthy borrowers that are below 720 or 700 — all the way down the credit score spectrum,” Galante said. “It’s important you look at the totality of that borrower’s ability to pay.”
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