Thursday, April 4, 2013

The Real Estate Bloggers

The Real Estate Bloggers

The Cycle Continues – Obama Wants Banks to Lower Home Lending Standards

Posted: 03 Apr 2013 07:05 AM PDT

spanish-inquisition2The housing industry has always been in a cycle where the the lending standards will loosen until there is a bubble or over-valuation and then over tighten to create an inability to borrow. That is understandable, and a normal part of the housing industry. And some will get hurt on either end of the spectrum.

However, over the past 30 years as the government has created a vast array of laws and regulations for the banking industry. Lenders are under the thumb of government regulators (and their political bosses) to fulfill the administrations objectives as opposed to following sound lending practices. And this is not an indictment, both political parties have been guilty of pressuring bankers.

To no ones surprise, the increased political pressure has caused the housing industry’s boom bust cycle to be more extreme. Now, in a stagnant economy, the administration is looking to open up the lending floodgates and create looser credit.

In response, administration officials say they are working to get banks to lend to a wider range of borrowers by taking advantage of taxpayer-backed programs — including those offered by the Federal Housing Administration — that insure home loans against default.

Housing officials are urging the Justice Department to provide assurances to banks, which have become increasingly cautious, that they will not face legal or financial recriminations if they make loans to riskier borrowers who meet government standards but later default.

Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today's low interest rates, among other steps. via The Washington Post

What is not being reported, but everyone knows, is that with thousands of pages of banking regulations on the books, all it takes is a bank regulator to do is give a nod and a wink to the bankers that it is time to loosen the credit standards for home loans. The bankers know that if they do not capitulate, they will face an audit that would do the Spanish Inquisition proud.

Since the banks know that if they play ball, they will be protected with generous government bailouts and subsidies when things go bad, it is not a bad play. If you do not believe me, go back and see how the bankers were treated after the last housing meltdown. No one of importance went to jail and the phrase "To big to fail" entered our lexicon with billions of taxpayers dollars heading right into the banking sector.

The housing industry is still barely recovering with record low interest rates and housing prices still near the bottom of the market in many parts  of the country. We have an election coming up in 2014 that is of great consequence to the political class. How can anyone be surprised if the strong arm is applied to the banking industry to make sure that the modest housing recovery is goosed to make sure that it benefits the administration.

It’s just politics…


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