Our president, in his wisdom, is bothered that the housing rebound is leaving out people with bad credit. So his administration is pushing banks to forget the immediate past, swallow their worries, and shell out:
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.
Officials are also encouraging lenders to use more subjective judgment in determining whether to offer a loan and are seeking to make it easier for people who owe more than their properties are worth to refinance at today’s low interest rates, among other steps.
This is making one or two observers, your present correspondent included, break out in hives. Ed Pinto, a former top executive at Fannie Mae and now a resident fellow at the American Enterprise Institute, fears this policy could “open the floodgates to highly excessive risk and would send us right back on the same path we were just trying to recover from.” But we’d better just slap on the cortisone cream and deal with it. The problem with the recovery is that it’s been primarily benefiting “established homeowners with high credit scores.” We obviously can’t have that.