Loose lending standards for home mortgage loans worked so well for the economy in 2007 and 2008, why not do it all again? That seems to be what Pres. Obama is thinking by nominating Mel Watt to head the Federal Housing Finance Agency (FHFA) the principal regulator of Fannie Mae and Freddie Mac.
Mr. Watt, a Democratic congressman from North Carolina, has a legislative track record of using federally insured home mortgage lending as a tool for social engineering. In 2003, he helped block Pres. George W. Bush's attempts to increase regulatory supervision of Fannie and Freddie. In 2007, he co-sponsored legislation that, if enacted, would have ensnared the mortgage giants even more so in the growing sub-prime mortgage debacle.
He will replace Edward DeMarco who has served as FHFA chief since August, 2009. DeMarco has been the frequent target of progressive legislators and policy advocates for his insistence on maintaining tighter lending standards for the GSEs. His critics have accused him of being the one person standing in the way of what they see as the salutary goal of making home loans available to people who, based upon ability to service the debt, have little business borrowing money. But under DeMarco's watch, the national rates for both mortgage defaults and homeownership have generally returned to levels that prevailed between 1970 and 1992; defaults at less than 1% and national homeownership of 65% in the third quarter of 2013.
The appointment of Mr. Watt is merely the latest step by the Obama Administration to return to the good old days of lending standards that predated the bursting of the housing bubble, where low down payments, low credit scores and high debt to income ratios were the trifecta for economic catastrophe.
Even otherwise sensible regulators like the Federal Reserve, OCC, and FDIC have signaled their acceptance of the CFPB's standards for minimum quality mortgages of 3% down and a credit score below 660.
Writing in the Dec. 5 edition of the Wall Street Journal, Peter Wallison of the American Enterprise Institute sees a housing bubble, with an inevitable crash, coming hand-in-hand with a return to subordinating sound lending practices to President Obama's progressive social agenda.
Are policy makers and agenda-driven regulators taking the economy down a disastrous road we have already traveled?
Let us hear what you think.
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