Yesterday's WSJ opinion page has once again pointed out that the danger of lending to people who are very bad risks has not gone away. They point out how we have not learned a thing from all of the losses and turmoil of this economic downturn.
WSJ: The Next Housing BustWhen private institutions gave loans and a chance to own a home to low income, inner city families, and when those loans went belly up, it was called 'predatory lending'. When the government gives loans that are 100% backed by the tax payers to people who cannot possibly pay them back it's just another government program helping to share the wealth, when it really should be called 'a federal subprime lending program'.
"The bill that passed last summer more than doubled the maximum loan amount that FHA can insure -- to $719,000 from $362,500 in high-priced markets. Congress evidently believes that a moderate-income buyer can afford a $700,000 house."
What a coutry! If you're down and out, but you think you deserve that $700,000 home, well, Uncle Sam is here to help. This is America after all!
"Even more foolish has been the campaign to lower FHA downpayment requirements. When FHA opened in the 1930s, the downpayment minimum was 20%; it fell to 10% in the 1960s, and then 3% in 1978."It's stunning that we have learned nothing! Wall Street has been villafied for it's role in risky loans, but for the FHA it's actually there objective to provide close to zero-down loans to risky applicants.
"With even a small drop in prices, many homeowners soon have mortgages larger than their home's value -- which is one reason FHA's defaults are rising"Hello? Does this sound familiar? Can you say "Bailout"?
