Here we go again: re inflating the housing bubble

“Is the Obama administration actively trying to create the conditions for another housing collapse? What everyone who follows the housing market knows full well is this: The major reason for the millions of home foreclosures during the meltdown was the policy of low down payments on home loans.

“One study by researchers at the University of Texas in Dallas looked at some 30 million mortgages issued before the bubble burst and found that “[t]he evidence strongly suggests that the single most important factor is whether the homeowner has negative equity in a house” — i.e., whether they paid a high or low down payment. This study found the down payment was a much stronger prediction of whether a loan would end up in default than the credit score of the borrower.”

Stephen Moore describes how The feds are pushing the same lax rules that triggered the crash.

“As the housing bubble kept inflating from 2001 to 2006, aspiring homeowners could walk into a bank or a branch of Countrywide Financial and walk out with home loans with as low as 2.5 percent or 3 percent down payment (including closing costs, which also could be financed through the loan). The Wall Street Journal, Investor’s Business Daily and other free marketeers warned of the insane risk that taxpayers were underwriting on almost $1 trillion in mortgages. They were shouted down as alarmists.”

“None of these lessons from the last crisis have taken hold in Washington. The best and the brightest in President Obama’s camp want to roll the dice again and lower, not raise, down payments and ease the credit rules at banks. When sensible people protest this insanity, critics call us fear mongers. That, too, is what the housing lobby said on the eve of the previous housing crisis.”

Try, try, again. Hope for different results this time. Never stop to think about why the fantasy might not be reality and why trying to make it so is a sure path towards disaster (again).

Comments are closed.