Writer Philip Van Doorn over at Market Watch published an article recently wherein he declared that when the day comes that we find ourselves beset by another housing crisis, the only people to blame then will be the banking community. Van Doorn basically says that the largest lenders’ insistence on sticking with a policy of lending only to those people who have premium credit, the ability to withstand stringent underwriting, and the cash to make a significant down payment, will be the reason for that crisis; stunningly, he seems to lay the blame for the stagnation in the economic recovery at the feet of lenders who are unwilling to make loans to borrowers with checkered credit histories and little money.
To briefly review, the housing crisis that was largely at the root of the economic collapse of 2008 was fueled by an unfortunate combination of massive numbers of loans made to people with rough credit…who were receiving 100% financing right out of the gate…and who were also being granted access to “clever” loan products with interest rate structures such that mortgage payments would remain at artificially low levels during the first few years of ownership, but that would jump in size when the rate levels reset per the terms of the mortgage. What’s more, a big piece of the “engine” behind all of this risky lending was the government itself, which loosened the underwriting standards at Fannie and Freddie in an effort to make the so-called “American Dream” more accessible to everyone, without much regard for whether a prospective homeowner had a genuinely appropriate financial profile for purchasing a home.
Van Doorn bemoans the fact that current lending standards in the conventional market, in place since things went kaput, demand that mainstream lenders “continue to shy away from the lower end of the mortgage market,” but I’m not certain what he expects these lenders to do; the fact remains that not only do these lenders have the stability of their own companies to think about, but the underwriting standards at the aforementioned quasi-government agencies responsible for insuring the loans remain very firm (as they should); the U.S. taxpayer is still bailing out non-performing loans made in the many years leading up to the collapse, and the sum of those bad loans is well into the trillions of dollars.
If Mr. Van Doorn wants to argue for a more robust lending market, he should instead argue for changes in U.S. personal and corporate income taxes and the elimination of job-killing, social engineering programs like the Affordable Care Act, the combined effects of which serve to deprive Americans of the better wages and opportunities that will ultimately improve those aforementioned financial profiles. As long as his argument begins and ends with lenders, it lacks coherency, as well as recognition of the foundational underpinnings of just what both helps and hurts housing, as well as the economy, at large.
Robert G. Yetman, Jr.
Managing Editor, The James L. Paris Report