More then 5 million bad loans were made and sold to the feds which in turn sold around the world with horrendous result for all markets.
But no matter, in view of the disaster of the last mortgage melt down that reduced our entire economy to rubble, is now headed down the same path. Why would the democrats want to willingly bring back the same nightmare that they caused starting with Jimmy Carter and then accelerated under Clinton when he and the DOJ threatened the banks if didn't make the loans the banks knew would go bad?
In reality there can be only one reason, new chaos in the financial markets to drive more people into poverty and dependency. It seems our markets are beginning to turn around so now it's time to bring back the progressive agenda of destruction. Result, millions of new democrat voters.
Reducing Down Payments to 3 Percent Is a Bad Idea
Source: Charles W. Calomiris and Stephen Haber, Redistributive Credit Policies Won't Fix Inequality, Economics 21, December 30, 2014.
January 13, 2015
After the crash of the American housing market in 2007, the news was full of talk of "subprime mortgages" -- that is, mortgages belonging to those with poor credit ratings. Why were subprime mortgages to blame? Misguided federal policy, say Columbia University Professor Charles Calomiris and Hoover Institution Senior Fellow Stephen Haber.
Writing for Economics21, Calomiris and Haber explain what happened in the mortgage market. The federal government wanted to make housing more affordable for low-income Americans. So, the government encouraged banks to give loans to low-income borrowers, and Fannie Mae and Freddie Mac -- government-sponsored enterprises that purchase and sell mortgages -- purchased those loans. A host of bad mortgages were issued, as individuals were required to put little money down and provide scant information concerning their employment and incomes.
Did this policy improve the economic situation for low-income Americans? Not at all. As Calomiris and Haber explain, low- and middle-income borrowers with huge mortgage debts lost their homes to foreclosure when the housing market collapsed.
Prior to the 1990s, a 20 percent down payment for a Fannie or Freddie housing loan was standard, but at the start of the subprime mortgage crisis, required down payments had fallen dramatically -- over one-quarter (26 percent) of Fannie Mae loans and 19 percent of Freddie Mac loans had down payments under 5 percent, according to Paul Sperry at the New York Post.
In December, the government announced that it was reducing the minimum down payment for Fannie Mae and Freddie Mac mortgages to a meager 3 percent in order to combat inequality, which Calomiris and Haber say is a bad idea, pointing to what happened just a few years ago.
What would be a better solution? Improved competition among banks, which the authors say "promotes credit growth in a way that tends to reduce inequality," rather than the opposite.
Writing for Economics21, Calomiris and Haber explain what happened in the mortgage market. The federal government wanted to make housing more affordable for low-income Americans. So, the government encouraged banks to give loans to low-income borrowers, and Fannie Mae and Freddie Mac -- government-sponsored enterprises that purchase and sell mortgages -- purchased those loans. A host of bad mortgages were issued, as individuals were required to put little money down and provide scant information concerning their employment and incomes.
Did this policy improve the economic situation for low-income Americans? Not at all. As Calomiris and Haber explain, low- and middle-income borrowers with huge mortgage debts lost their homes to foreclosure when the housing market collapsed.
Prior to the 1990s, a 20 percent down payment for a Fannie or Freddie housing loan was standard, but at the start of the subprime mortgage crisis, required down payments had fallen dramatically -- over one-quarter (26 percent) of Fannie Mae loans and 19 percent of Freddie Mac loans had down payments under 5 percent, according to Paul Sperry at the New York Post.
In December, the government announced that it was reducing the minimum down payment for Fannie Mae and Freddie Mac mortgages to a meager 3 percent in order to combat inequality, which Calomiris and Haber say is a bad idea, pointing to what happened just a few years ago.
What would be a better solution? Improved competition among banks, which the authors say "promotes credit growth in a way that tends to reduce inequality," rather than the opposite.
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