Obama Administration Pushing Banks to Make Subprime Loans

Yes, this is really happening:

"The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place."

Skeptics? How about anyone with an ounce of common sense? If you wanted even more proof that government meddling caused the real estate bubble and near destruction of the financial system, look no further. The central planners never learn from the past because someone else always suffers the consequences for their arrogance and stupidity.

  " 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."

 That would be the same FHA that's essentially insolvent now that it has taken back and expanded its role as the insurer of loans no one else will touch. When Fannie and Freddie were buying loans to anyone who could fog a mirror, FHA had a lot less business. Meant originally for low income borrowers who could only afford small down payments, FHA now insures - largely at taxpayer risk - loans up to $730,000.

It's also important to note that with a few restrictions, FHA loans are fully assumable. You will never get that on a fully private loan, and with rates as low as they are now,  those fixed rate mortgages will have a lot of value when interest rates spike. And they're going to. Big time.
  

"The FHA, in coordination with the White House, is working to develop new policies to make clear to banks that they will not lose their guarantees or face other legal action if loans that conform to the program’s standards later default. Officials hope the FHA’s actions will then spur Fannie and Freddie to do the same.

The effort requires sign-on by the Justice Department and the inspector general of Department of Housing and Urban Development, agencies that investigate wrongdoing in mortgage lending."

Once burned, twice shy I suppose. Using a series of carrots and sticks, starting in the nineties and throughout the government induced bubble, banks were cajoled, intimidated and enticed to make, buy and sell loans given to objectively unqualified buyers. The pressure came from HUD, Fannie and Freddie, Congress, community groups (ACORN) and others, including the Department of Justice. The Jenet Reno DoJ threatened civil and criminal  prosecutions under civil rights law if lending standards didn't lead to the right amount of loans to the right kind of people.

So when the shit hit the fan and everything melted down in 2008 the lenders were vilified by the same people who mandated they make these toxic loans. I don't necessarily feel bad for them since they made out pretty good themselves. DoJ stopped short of criminal prosecution, most likely because the defendants would then have every reason to pull the covers on the whole thing and expose the rot under the public pronouncements.

Unlike the progressive central planners in Washington, the private sector does learn from the past and wants assurances - for what their worth- that they wont be subject to public opprobrium when this fails again.