Your Taxes (Once Again) Are Underwriting Bad Mortgage Loans
The Federal Housing Finance Agency doubled down on failure by ratcheting up federal affordable housing mandates for Fannie and Freddie after the 2008 financial crisis.
Wednesday, January 09, 2019
Bad government policies helped spawn the 2008 financial crisis. Those policies are still in place. One of them is lending money to non-creditworthy people to buy houses. As
Bloomberg News reports, government guarantees underpin home loans to people who have already defaulted on their car loans or filed for bankruptcy. When the economy goes south, they will default on their home loans, too (at the taxpayers' expense). Thanks to the federal government’s “most important affordable housing program,” a loan officer gets a “nearly risk-free commission” for making loans that the “government ultimately bears the risk for.” As a result, a lender views a man with bad credit as an enticing prospect even though, as
Bloomberg News notes:
His car has been repossessed, something that would likely disqualify him at the Bank of America branch next door.
“Usually a repo that’s like three years old, we’re not really going to sweat that,” he assures the caller. “We’re pretty lenient here.” He steers his prospect to several $400,000 homes with swimming pools. “Have your wife check that out,” he says, referring to a remodeled kitchen with granite countertops. “She’s going to love it.”
Many of Christian’s customers have no savings, poor credit, or low income—sometimes all three. Some are like Joseph Taylor, a corrections officer who saw Christian’s roadside billboard touting zero-down mortgages. Taylor had recently filed for bankruptcy because of his $25,000 in credit card debt. But he just bought his first home for $120,000 with a zero-down loan from Christian’s company. Monthly debt payments now eat up half his take-home pay. “If he can help me, he can help anyone,” Taylor says. “My credit history was just horrible.”
Christian can do this kind of deal because he is, in effect, making the loan on behalf of the federal government through its most important affordable housing program. It’s a sweet deal: He gets his nearly risk-free commission. Taylor puts no money down. If things go south, the government ultimately bears the risk.
https://fee.org/articles/your-taxes-once-again-are-underwriting-bad-mortgage-loans/