Monday, February 16, 2015

Government Regulation Is Hurting The Housing Market

When the housing bubble burst, Democrats were quick to blame greedy Wall Street and greedy mortgage lenders for getting people into mortgages they couldn't afford.  But the primary reasons that so many people got themselves into bad mortgages were regulations that Democrats, themselves, hoisted upon the lenders.

In 1977, the Democrats of Congress wrote a law called the Community Reinvestment Act (CRA) and President Jimmy Carter signed it into law.   The purpose of the law was stop a practice of "redlining" whereby low income Americans, primarily minorities, were denied mortgages because of an assumed risk of future job insecurity.  The CRA attempted to stop that practice by forcing banks and lenders to provide at least 30% of their loans to the lower income families in the community that they served; or, otherwise lose their federal lending guarantees, federal bank account insurance, and a whole host of other means of federal support afforded to them as lenders.

So, in order to comply with the law, lenders were forced to lower their lending standards so that low income and traditionally low saving members of their respective community could receive loans.  Of course this also increased the risk of their defaulting on those loans.  But, the Democrats weren't finished.  Under Clinton, the 30% threshold was upped to 50%; furthering the lowering of lending standards.  The competition for those kinds of low income loans intensified to the point that numerous no-down-payment adjustable rate mortgages with low introductory interest rates were issued to people who had no business owning a home.  And, 9/11 didn't help either because the resulting recession forced the Federal Reserve to lower interest rates to historically low levels which attracted even more people into extremely low interest loans.  Thus, when the Federal Reserve did start raising rates again, all too many adjustable rate mortgages pushed monthly payments higher and higher to points that were no longer affordable for the homeowner.  Thus the foreclosure rates increased and housing prices plummeted.

So, in 2009, with the Congress being completely controlled by the Democrats and President Obama, two members of Congress joined forces to write a new mortgage lending protection law that is know today as the The Dodd-Frank Wall Street Reform and Consumer Protection Act with the mortgage protection portion of that law set to become effective in January 2014.  In doing so, strict FICO score limits were set along with a minimum down payment of 20%.  The law also mandated that FHA loans could not be adjustable and the lender insured that no loan was given out, both now and in the future, where it would be too expensive for the borrower to repay.  In other words, the borrower was no longer liable for their own actions.

Thus, the mortgage lending business has pretty much slowed and as a result so has the housing market for the last 11 months in a row through November of 2014.  Exactly the amount of time that the mortgage lending portion of Dodd-Frank had been in effect.  As a result, the housing price appreciation has also slowed or even stopped which means it will take years for millions of Americans -- 17% of all properties -- to finally get themselves out of underwater loans where their home is worth less than the loan amount.



The True Origins of This Financial Crisis:  As opposed to a desperate liberal legend:

Here's How The Community Reinvestment Act Led To The Housing Bubble's Lax Lending:

Dodd–Frank Mortgage Rules Unleash Predatory Regulators:

Home Price Growth Slows For 11th Straight Month In November:

17 Percent of U.S. Properties Seriously Underwater, Down From 26 Percent Year Ago:

The U.S. Housing Crisis: Where are home loans underwater?: 

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