According to the Washington Post, the Obama administration is pushing big banks to make more home loans available to Americans with bad credit – the same kind of government guidance that helped blow up the housing market:
In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.
Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.
Think about this statement. The administration is asking banks – banks that Washington bails out; banks that Washington crafts regulations for — to embrace risky policies that put the institution and its investors (not to mention, all of us) in a precarious position. So precarious, in fact, that banks have to ask government if they can be freed of any legal or financial consequences.
Not that they have much choice. Since the housing crash, Washington, as the Post points out, “has shaped most of the housing market, insuring between 80 percent and 90 percent of all new loans.”
And I have no doubt that demanding banks make more loans available to folks with bad credit is a political winner. But how can anyone still believe it’s good policy? Since the 90s, government has prodding banks into expanding home ownership despite every law of judicious banking and common sense. The American Enterprise Institute’s Peter Wallison has argued for years that government was the main culprit of the housing collapse.
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