This is an interesting summary of the Ur of the Chaldees moment for the housing bubble. Of course the market was manipulated before this but more modestly. It's a good example of the Gresham's law for policy: Bad, profligate policy drives out good, sober policy. See Medicare, Social Security, Stimulus, "Green" subsidies, Corporate Tax Breaks, etc. etc. etc. The tragedy is that the Feds don't have to spend a current budget dime to destroy trillions. When they control the rules that hand legal privileges to certain entities, simply manipulating them can crush our children's futures all by themselves. And the boys who did it? Well Barney Frank still has his job, doesn't he?
"In 1995, HUD announced a National Homeownership Strategy built upon the liberalization of underwriting standards nationally. It entered into a partnership with most of the private mortgage industry, announcing that "Lending institutions, secondary market investors, mortgage insurers, and other members of the partnership [including Countrywide] should work collaboratively to reduce homebuyer downpayment requirements."
The upshot? In 1990, one in 200 home purchase loans (all government insured) had a down payment of less than or equal to 3%. By 2006 an estimated 30% of all home buyers put no money down.
"The financial crisis was triggered by a reckless departure from tried and true, common-sense loan underwriting practices," Sheila Bair, chair of the Federal Deposit Insurance Corporation, noted this June. One needs to look no further than HUD's affordable housing policies for the source of this "reckless departure." If the mortgage finance industry hadn't been forced to abandon traditional underwriting standards on behalf of an affordable housing policy, the mortgage meltdown and taxpayer bailouts would not have occurred."
MP: A good summary of how the political obsession with affordable housing caused a lot of the problems in the real estate and mortgage industries, and led to the financial meltdown.
Hat tip: Carpe Diem
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