Interesting article on the recent mortgage debacle in Investors Business Daily.
Bottom line: In 1994 the Clinton administration told lenders that they would aggressively pursue them as engaging in discrimination if they rejected minority loan applications in greater proportion than whites. As a result, lenders abandoned traditional risk assessment and management processes. And, Freddie & Fannie provided de facto government backing for the tsunami of bad loans that ensued.
Unfortunately, the lenders did not have the integrity to stand up to this pressure. Instead, they lied to the borrowers by telling them they were qualified to buy something they couldn't afford, and they lied to the markets by telling them the loans were solid.
And, the sudden deluge of govt-backed money caused a bubble in the housing market that left even many credit-worthy borrowers under water in the wake of its bursting.
And the Obama administration is growing even more aggressive in pursuing this policy ... but I'm not sure the markets will get fooled again.
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