If you believe that sub-prime mortgage lending was a primary root cause of the housing crisis as I do then it seems clear that what we experienced should have come as no surprise.
For example,The FHA was founded in 1934 to help lower to middle-income and first-time home buyers obtain a mortgage. However, over the years as the housing lobby wanted more and more taxpayer-guaranteed money into housing, the role of the FHA grew. When the FHA started, the minimum required down payment was 20%. In the 1960s, that number fell to 10%, and now it’s 3.5%. That should tell us something right there. The desire to push home ownership even among those who could not afford it took precedence over prudent financials.
Today the FHA requires a 10% down payment for individuals with a credit score below 580. That may sound prudent, but then consider that 580 is a pretty poor score.
The average credit score for each scoring model is; Fico score, 711, and for VantageScore, it’s 748. Many banks use 620 as a cut-off score for certain mortgages and other financial products. So, credit scores below 620 are probably considered bad credit scores.
In other words, almost regardless of your credit score and history if you can come up with 10% of the price of a house you can get FHA backing for a mortgage.
Should we be surprised that the slightest glitch in the economy (or simply their personal economics and money management) would cause these borrowers to head for mortgage default?
We seem to follow a pattern in government and in our lives that rather than do everything possible to reach our goals, we strive to lower the requirements to reach those goals. Home ownership is one example, leasing as opposed to buying a car is another, attending a prestigious college then defaulting on massive loans is another. From my perspective, the quest is not to have, but the ability to have. It’s like cheating on a test. What good is an “A” if you didn’t earn it, it certainly was not success. In fact, if you ever needed the knowledge you were tested on, you would be screwed because you didn’t learn anything.
Making sure there are no unfair obstacles to reaching ones goal, such as discrimination in housing or lending is desirable, but lowering the standards is shortsighted and risky to both the individuals and the institutions. We throw around the word “affordable” as if some government action can make it so. That is a myth as in affordable health care or affordable housing. What makes something affordable is the ability to pay, not artificially lowering the cost with the resulting transfer of those costs to someone else.
Related articles
- What is a VantageScore? (lexingtonlaw.com)
- FICA Score (cardhub.com)
QUINNSCOMMENTARY 
So, ordinarily agree with you, but, the data are in, and many of those individuals who could not afford a home in the first place, are:
Still in the home, and
Have had the debt written down or have received other financial assistance.
So, not only have we not learned anything from the experience, we have confirmed that bad actions may be profitable fop those who meet the beauraucratic and arbitrary eligibility limits for government intervention … since wecompounded the losses by adding even more subsidy to our failures, suggesting we will do it again if given the chance.
As Barney Frank once said at a hearing, “I want to role the dice on that”. It came up snake eyes and you and I paid… and where in Dodd Frank have you seen any scaling back of FannieMae and FreddieMac?
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Actually I think you are agreeing with me or I with you.
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