Obama Encouraging Lenders To Loosen Their Restrictions

  • April 3rd 2013

by Shilpi Paul

Obama Encouraging Lenders To Loosen Their Restrictions: Figure 1

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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