It’s been five years since the housing market collapsed leading to a period of substantial chaos across the financial system and real estate industry.

But several years out, a new market has yet to emerge, and the true reason for policymakers slow response has more to do with the fundamental debate underpinning today’s proposals for reforming the mortgage finance system.  

The biggest elephant in the room is the inability for policymakers to agree on whether policies denoted as ‘affordable housing’ initiatives really help American homeowners or simply set borrowers up to fail.

Ed Pinto, a former GSE executive and fellow at the American Enterprise Institute, continues to argue against the government’s new push for affordable or flexible lending.

At a time, when many in mortgage finance are pushing for flexibility to get more families into mortgages, Pinto is asking policymakers to pound the breaks on the allowance of government subsidies that create artificial lifts in the mortgage finance space.

“Proponents of Subprime 2.0 say a government centric housing system is necessary to assure flexibility, accessibility, affordability and stability. We know from the last experiment that flexibility means subprime lending, accessibility means entitlements, affordability means subsidies, and stability means increasing leverage during boom times,” he wrote.

“For example, achieving flexibility would require the widespread use of subprime loans with low down payments, low credit-score requirements and high debt-to-income ratios. Such a system is doomed to failure.”

Pinto continues to push for sound underwriting, strong downpayments and prime quality loans as the real drivers of sustainable homeownership.

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