From Reason magazine’s “Five Lies About the American Economy”, subtitled, “The Obama team’s favorite slices of fiscal baloney:”
2. “No one wants banks making the kinds of risky loans that got us into this situation in the first place.”
President Obama made this claim following a December meeting with big bank officials, then contradicted himself by urging bankers to take “third and fourth” looks at rejected business loan applications. But the administration has been even more enthusiastic about encouraging another type of credit: the precise risky loans that got us into this situation in the first place.
Mortgage lending standards have declined, and the amount of risky debt taxpayers are underwriting has rapidly increased, under Obama’s guidance. A 2009 audit found that the Federal Housing Authority (FHA) was failing to vet lenders, ignoring missing borrower documentation, and declining to consider negative information prior to guaranteeing loans. More important, the FHA still guarantees mortgages with a minimum down payment of only 3.5 percent, despite abundant evidence that a borrower with low equity is more likely to default than any other type of borrower. (See Lie No. 3.) Defaults on government-approved loans continue to rise, as do redefaults on mortgages refinanced under HAMP.
Undaunted, the administration wants to give unpromising borrowers greater access to debt. At press time, the Treasury Department was considering allowing borrowers to get HAMP modifications by using only pay stubs, rather than tax records, to prove their financial status.
Of course, no one wanted “banks making the kinds of risky loans that got us into this situation in the first place”, other than Democrats themselves:
Related: “‘No false claim left behind’ is the perfect summation of President Obama’s last-gasp push for a bill that hasn’t even been written. No matter details or cost, it’ll cure whatever ails you and America.”