Uh-oh. Here we go again:
The weight of the mortgage crisis fell heavily on lower-income and minority communities, where first-time home buyers often fell victim to the predatory lending practices that resulted in an explosion of defaults and foreclosures.
That left consumer advocates and civil rights groups frequently at odds with bankers, mortgage lenders and their lobbyists during the debate over the financial regulation act last year, which aims to rein in the subprime mortgage excesses that inflated the housing bubble.
Now, as banking regulators are rewriting the rules for the mortgage market, unusual alliances have sprung up in opposition to tighter lending standards. Advocacy groups like the N.A.A.C.P. and the National Council of La Raza, a Latino civil rights organization, on the one hand, and the American Bankers Association on the other, are joining together to fight rules they say could make home loans less affordable for minority and working-class Americans. [Emph. added]
Wait a minute. Didn’t the housing blowup come about in the first place because of the federal government’s 20-year-long drumbeat to boost homeownership among low-income borrowers? It did indeed. People can blame the bust merely on “predatory lending practices” all they like, but the real causes were more complex. Underwriting models-especially at the rating agencies-were deeply flawed. Compensation practices were counterproductive. And, yes, there was some predatory (not to mention dumb) lending going on, not to mention some egregious fraud on the part of borrowers.
But this whole symphony of folly was allowed to play on for so long, and to such ruinous results, because it all was consistent with the federal government’s policy at the time, which said that, essentially, anyone in the country who wanted to own a house should be able to. In the fullness of time, we now know that the policy wasn’t so different from mandating teenagers drink a gallon of Four Loko daily. Crazy things happened.
I have no doubt that as regulators come up with their post-Dodd-Frank lending rules, they will err on the side of being too conservative. That’s human nature. Thoughtful lobbying aimed at loosening things up will be a good thing. But the goal of the rulemaking ought to be to create ways for banks to lend widely and prudently, without unduly restricting credit. Re-introducing the entirely separate (and conflicting) notion of home-ownership as some sort of entitlement is a bad, bad idea. We tried that once. It didn’t work.
P.S.: Lenders’ and consumer groups’ resistance to efforts to get the federal government out of the mortgage lending business once and for all is hopelessly misguided, too. The more deeply the feds stay enmeshed in the business and keeps it semi-politicized, the more likely we get a rerun of the housing crackup, and sooner rather than later.
What do you think? Let me know!