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Obama Encouraging Lenders To Loosen Their Restrictions

by Shilpi Paul

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The Obama administration is pushing for lenders to make home loans available to those with weaker credit, The Washington Post is reporting.

As the housing market gets back on its feet across the country, the administration is concerned that many low- and moderate-income citizens will be unable to buy homes as a result of the tighter lending restrictions that have sprung up in recent years. They also worry that young people who have not built up sufficient credit scores or savings will not be able to qualify for a loan to buy their first homes. As such, they are asking banks to “use more subjective judgement” when deciding on a candidate, and are encouraging them to use mortgage products like FHA loans that offer government protection for the bank if a lender defaults.

As the administration tries to convince banks to loosen their restrictions, critics are piping up, warning that these sorts of practices were what led to the recent housing crash.

From the Post:

Obama pledged in his State of the Union address to do more to make sure more Americans can enjoy the benefits of the housing recovery, but critics say encouraging banks to lend as broadly as the administration hopes will sow the seeds of another housing disaster and endanger taxpayer dollars.

“If that were to come to pass, that would open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from,” said Ed Pinto, a resident fellow at the American Enterprise Institute and former top executive at mortgage giant Fannie Mae.

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See other articles related to: obama, lending reform, lending, housing crisis

This article originally published at http://dc.urbanturf.com/articles/blog/obama_encouraging_lenders_to_loosen_their_restrictions/6877

7 Comments

  1. Zesty said at 11:54 am on Wednesday April 3, 2013:

    This seems like an Onion or April Fool’s article. It’s hard to understand why loosening credit standards would be a good idea; a few years after, what will be known as, “one of the greatest financial crisis in history” caused by loose & subjective credit standards. #confused

  1. Adam said at 1:09 pm on Wednesday April 3, 2013:

    “the administration is concerned that many low- and moderate-income citizens will be unable to buy homes as a result of the tighter lending restrictions that have sprung up in recent years.”

    Is this the same Obama administration that runs the CFPB that just issued new stricter mortgage underwriting standards?  The standards haven’t just “sprung up,” the government requiring them!

    http://www.consumerfinance.gov/pressreleases/consumer-financial-protection-bureau-issues-rule-to-protect-consumers-from-irresponsible-mortgage-lending/

  1. Bellow said at 1:15 pm on Wednesday April 3, 2013:

    A sensible loosening of lending standards is needed. When you have a 680 credit score and can’t get a decent home loan, something is wrong.

  1. Diana said at 1:32 pm on Wednesday April 3, 2013:

    I agree with Bellow. We don’t need to go back to the days when anyone with a pulse could get a home loan, but we have swung so far in the opposite direction that there are a lot of people out there with good credit and solid finances that can’t get a mortgage. Makes little sense.

  1. Clay said at 1:36 pm on Wednesday April 3, 2013:

    Adam is right. This is precisely what is wrong with our government. First politicians (republican and democrat) tell their constituents that the banks are primarily to blame for the fiscal crisis. Their campaigns in 2008 and 2010 and 2012 capitalized on the politically popular mantra of “blame wall street” (but disregarded the fact that the legislative and executive branches of the federal government practically required banks to open up lending to people who otherwise could not afford to buy a home from 1995-2008 via FHA and looser regulation—the banks of course were not complaining about the government backed loans and looser regulation because it allowed them to make buckets of money).

    The strong anti-bank rhetoric and subsequent increased government financial regulations that have come into play over the last 5 years are a direct result of government’s desire to shift blame to banks for making higher risk loans that the government encouraged them to make in the first place.

    Now that the banks have adjusted, and have tightened up their lending practices (too much in my opinion) the government is blaming them for slowing the recovery by following the very rules the government has implemented!

    It is time we all take responsibility for our financial well being. Just because the government or a bank tells you that you can afford something does not mean you can afford something. The more individuals become reliant on institutions to protect them the more dependent we all become on the short-sided assumption that those in positions of power are able to protect us/ or even want to.

  1. Fiona said at 8:40 pm on Wednesday April 3, 2013:

    Here we go again. Midterm elections coming. Make sure lots of unqualified Dems get loans they dont understand and will never repay. In 2015 Obama will vilify the banks, demand standard be tightened and it’ll start all over again.

  1. layla said at 12:03 pm on Friday April 5, 2013:

    No, no no! Have we learned nothing?

    Also, 680 is NOT a good credit score! You’d likely have at least one or two red flags on your credit to fall below 700 (high debt levels, a serious delinquency). Why would a bank want to lend you hundreds of thousands of dollars, especially when it’s difficult to foreclose in many areas now?

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