The bottom fell out of the American Economy in 2008/2009 mainly on bad mortgages….
The seeds of that situation is creeping back…
And those low income Americans seeking an entrance into the housing market are stuck in the middle …
The binge in high-risk lending has some executives and regulators on edge and could grow problematic if the economy continues to weaken or enters a recession, as more economists are predicting could happen within a year. Two Freddie Mac officials told a government inspector general earlier this year that certain loans they had been pushed to buy carried a higher risk of default, and problems could multiply when the economy slows.
“There is a point here where, in an effort to create access to homeownership, you may actually be doing it in a manner that isn’t sustainable and it’s putting more people at risk,” said David Stevens, a former commissioner of the Federal Housing Administration who led the Mortgage Bankers Association until last year. “Competition, particularly in certain market conditions, can lead to a false narrative, like ‘housing will never go down’ or ‘you will never lose on mortgages.’ ”
The risky situation is a direct outgrowth of the extraordinary steps taken more than a decade ago in response to the 2008 financial crisis, which itself had roots in excessive mortgage lending and a broad national focus on boosting homeownership.
Democrats pushed for curbs on risky lending, but Obama administration regulators later nudged Fannie Mae and Freddie Mac toward riskier mortgages. The Federal Housing Finance Agency and the Department of Housing and Urban Development continued to allow Fannie and Freddie to expand their exposure to risky loans during the Trump administration. White House officials did not directly push the change, but they did little to stop it. The Treasury Department has recently called for cutting back on mortgage-related risks, but it is not a top priority at the White House while Trump battles Democrats on impeachment.
Now the government’s response to the last crisis threatens to cause a new one. The White House and congressional leaders are searching for answers, and Trump administration officials are looking for a way to release Fannie Mae and Freddie Mac from government control. The Trump administration took a critical step, allowing the firms to hold on to more capital to cushion against future losses. The process is expected to take more than a year….
…loans with high debt-to-income thresholds are particularly dangerous during a downturn, because it can be very difficult for people to come up with payments if they lose their jobs or if their credit card bills grow. The performance of these loans in such a scenario has not been tested since the CFPB exemption was put in place five years ago.
“It’s an explosion waiting to happen,” said Robert Pozen, the former president of Fidelity Investments and a senior lecturer at the Massachusetts Institute of Technology. “People don’t seem to be worried about it, but they weren’t worried about it the last time until it all blew up.”…