From
our professional planning experience, exactly what happened!!!
The Housing Boom and Bust: A
political crusade gone wrong.
National Review
By Thomas Sowell
April 29, 2009, 0:00 a.m.
In the spirit of bipartisanship, my newest book — The Housing Boom and
Bust — shows how both Democrats and Republicans ruined both the housing
markets and the financial markets.
Like so many disasters, the current economic crisis grew out of
policies based on good intentions and mushy thinking.
For far too long, too many people have regarded homeownership as “a
good thing.” It is certainly true that homeownership has its benefits.
But, like everything else, it also has its costs and its risks.
Weighing such trade-offs is something that individuals and families can
do for themselves. It is when such decisions are made by politicians —
of whatever party — that trade-offs tend to vanish into thin air,
replaced by pursuit of a “good thing.”
Beginning in the 1990s, getting a higher proportion of the American
population to become homeowners became the political holy grail of
government housing policies. Increasing homeownership among minorities
and other people of low or moderate incomes was also part of this
political crusade.
Because banks are regulated by various agencies of the federal
government, it was easy to pressure them to lend to people that they
would not otherwise lend to — namely, people with lower incomes, poorer
credit ratings, and little or no money for a conventional down payment
of 20 percent of the price of a house.
Such people were referred to politically as “the underserved
population” — as if politicians know who should and who shouldn’t get
mortgages better than people who have spent their careers making
mortgage-lending decisions.
But, in politics, power trumps knowledge. Banks whose mortgage-loan
approval rates for “the underserved population” did not match the
prevailing preconceptions found that they could not get government
regulatory agencies to approve their business decisions on opening new
branches or enlarging their financial operations, the way competing
banks did when those competing banks met the lending quotas set by the
government.
If meeting those quotas required lowering the standards for granting
mortgage loans, that was often considered a lesser evil than having
government regulators stalling or vetoing the business decisions
necessary for competing in the financial markets.
While Democrats spearheaded this crusade, Republicans joined in as
well. The George W. Bush administration, for example, urged Congress to
pass the American Dream Downpayment Initiative, which subsidized the
down payments of prospective home buyers whose incomes were below a
certain level.
Who could be against “the American dream” of homeownership or so
mean-spirited as to ask how much it would cost the taxpayers or what
risks it would create for the whole financial system? Certainly not
most Democrats or Republicans in Congress or the White House.
The media were also part of this crusade for more homeownership, more
widely available. If some segments of the population did not own homes
as much as others, that just showed that there was something wrong with
the mortgage-lending process, as far as editorial-office philosophers
were concerned.
As the St. Louis Post-Dispatch put it, “Lending institutions are being
far more conservative than they have to be in determining the
creditworthiness of minorities.”
Later, disastrous default rates and foreclosure rates among “the
underserved population” who had been given mortgage loans to satisfy
government quotas suggest that the old-fashioned mortgage
qualifications that had been pooh-poohed in editorial offices had more
basis than the crusades of politicians and the press.
There are many other complications covered in The Housing Boom and
Bust. But behind all the complexities was a very simple fact: Monthly
mortgage payments by millions of home buyers were what provided the
money for the banks, the financial institutions that bought mortgages
from the banks, and the Wall Street firms that created sophisticated
securities based on those mortgages.
Riskier mortgage-lending practices, imposed by government, were what
set the stage for many mortgage payments to stop and thus for the
financial disasters that followed. Political rhetoric, echoed in the
media, seeks to obscure that painfully plain fact.
— Thomas Sowell is a senior fellow at the Hoover Institution.
© 2009 CREATORS SYNDICATE, INC.