Democrats May Inflate Another Housing Bubble

Subsidies and regulations created the 2008 crisis. Guess what the 2020 candidates are proposing

By Jason L. Riley. Excerpts:

"Peter Wallison, who follows the financial industry at the American Enterprise Institute, has noted that by mid-2008, right before the crisis, 56% of all U.S mortgages were subprime or otherwise risky. Of those, 76% were on the books of government agencies such as Fannie Mae and Freddie Mac . How did we reach that point? At the urging of federal housing regulators, lenders extended credit to people who never would have qualified for loans using traditional criteria. Lending quotas for favored minority groups and low-income applicants were increased by government bureaucrats, and mortgage companies came up with creative ways to meet them.

During the housing boom, the traditional 30-year fixed-rate mortgage became less common, while interest-only and adjustable-rate loans gained popularity. In 2002 less than 10% of new mortgages were interest-only, but that proportion rose to 31% by 2005. Lenders also knew that Fannie Mae was required to buy a certain number of these risky mortgages from banks, which meant that if a borrower defaulted on a loan, it would be Fannie’s problem and not the bank’s. Elizabeth Warren & Co. would have us believe that insufficient regulation of the private sector caused the housing crisis, but the truth is closer to the opposite.

Another pernicious mantra on the left is that loan disparities between blacks and whites are evidence of bias. Yes, studies show that blacks received subprime loans at higher rates than whites. They also show that whites received them at higher rates than Asians, which suggest that something other than racism is at work. Maybe the rate of loan approvals across groups differs because wealth, income and credit histories differ as well, and banks are in the business of reducing the risk of default."