Tuesday, April 16, 2013

Bubble Boy Update: The Obama Subprime Bubble

April 16, 2013

Subprime Scandal: The administration is fueling another housing bubble by pushing lenders to finance homes for people who can't afford them. Pressure is coming from all corners of government.

President Obama is worried about a plunge in new-home buying among minority borrowers with subprime credit scores. So he's using the Federal Housing Administration, for starters, to help finance failure.

In a reckless gambit, FHA is asking lenders to relax lending standards, while assuring them it will back home loans down to a 580 FICO score with a minimal down payment and high debt-to-income ratio.

"The obligation that I have is to ensure lenders using the FHA program are lending to as full a spectrum of the credit box as possible," FHA Commissioner Carol Galante recently said.

FHA's chief urging banks to underwrite subprime loans conjures up bad memories of Fannie Mae CEO Franklin Raines begging for more subprime loans before the crisis.

In fact, loans purchased, insured or guaranteed by either Fannie Mae or Freddie Mac, as well as FHA, are automatically designated "qualified mortgages" under new mortgage rules issued by the Consumer Financial Protection Bureau.

The new rule offers some legal protection to lenders pressured to make junk mortgages. Although FHA is the government's new anchor subprime program, Fannie and Freddie are still backing subprime mortgages.

Pressure to ease credit is coming from other federal agencies, including the Justice Department, which has threatened banks with lawsuits if they don't reinvest in minority communities hit hard by subprime foreclosures. It's ordered some lenders to open branches in recessed areas of Detroit and St. Louis and other cities with heavy subprime foreclosures.

What's more, the biggest mortgage lenders in the country, including Wells Fargo and Bank of America, are under federal mandates to advertise in minority media and offer loans to people on "public assistance."

The government is actually forcing them to target high-risk borrowers for 30-year debt under threat of prosecution. They have to adopt minority-friendly loan programs over the next several years or face investigation for discrimination.

Some of these programs include setting aside millions in prime mortgages for minorities who, according to government documents IBD has reviewed, would ordinarily not qualify for reasons including "the lack of required credit quality, income or down payment."

In effect, Justice is using private banks to carry out affirmative-action lending.

Obama's new credit-fairness police force is actively engaged in the administration's rebooted crusade to boost minority homeownership. CFPB coordinates investigations with Justice and HUD and participates in the Federal Interagency Task Force on Fair Lending.

As IBD also first reported, the little-known task force of bank regulators has dusted off a Clinton-era regulation known as the "Policy Statement on Discrimination in Lending," which warns lenders they have an obligation to be more "flexible" with minority homebuyers with weak credit to make up for "past discrimination."

It's the same result: unsustainable homeownership.

New data from John Burns Real Estate Consulting estimates a whopping 7 in 10 deadbeat homebuyers will qualify for another mortgage by the time Obama leaves office, thanks to his easy lending policies. That's over 3 million subprime foreclosures and serious credit risks going right back into the financial system and right back onto the books of Fannie and Freddie and FHA.

The new housing mandates are designed to build homeownership among subprime borrowers who lost their jobs and homes, regardless of their credit history or savings or how much equity they can bring to the table. But the administration is just setting these folks and their families and neighborhoods up for failure all over again.

Once again, Democrats, this time led by Obama, are sowing the seeds of another financial disaster.

source: ibd

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