Here We Go Again: Obama Pushes Banks To Lower Home Loan Standards

Recently, White House Press Secretary Josh Earnest said the following: "One of the key legacy achievements of this presidency will be the important reforms of Wall Street. Those reforms have led to a financial system that is more stable and ensures that taxpayers are not on the hook for bailing out financial institutions that make risky bets."

Evidently the Obama administration has a different definition of “risky bets”, and “taxpayers not on the hook” than most people, because as the Washington Post reports:

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.

 

... 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.

So on one hand the Obama administration is touting the fact that they are sure they’ve cleaned up the financial system to the point where it’s more stable, and taxpayers "definitely" won’t be on the hook for bailing out banks making risky bets. On the other hand, the administration is pushing banks to loan to sub-prime borrows again, less than eight years after completely blowing up the global financial markets for doing precisely that.

For the banks, this is clearly great news - make more loans + more government guarantees = risk free profits...

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.

 

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.

... for those who, however, still pay taxes and will be tasked to bail out banks during the next crisis, not so much.

It appears as though the US isn’t just competing with China for jobs and market share, but also to see who will be the fastest to blow up the global financial markets again.

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