Is Another Mortgage Meltdown on the Horizon?

Federal officials are moving to enact wrongheaded policies that seem destined to create yet another mortgage crisis, housing expert Edward Pinto recently warned in the The Wall Street Journal.

The White House’s efforts to make mortgages more accessible are to blame, according to Pinto, co-director and chief risk officer of the International Center on Housing Risk at the American Enterprise Institute. 

“In the Obama administration, new guidance on housing policy invariably means lowering standards to get mortgages into the hands of people who may not be able to afford them,” Pinto wrote in his Jan. 27 WSJ piece.

Specifically, he was referring to new guidance forthcoming from the Federal Housing Finance Agency, which has overseen Fannie Mae and Freddie Mac since 2008. The guidance—expected by the end of March—likely will mean reduced “guarantee fees” meant to cover the credit risk on loans guaranteed by Fannie and Freddie.

Fannie and Freddie face Congressional mandates to increase loans to people in lower income brackets, and they essentially compete with the Federal Housing Administration for this slice of the market. Therefore, the move to decrease guarantee fees can be seen as a response to the FHA’s potential lowering of annual mortgage premiums, according to Pinto. 

In the past, similar “price wars” among these entities—encouraged by realtor associations and “left-leaning” organizations such as the Urban Institute—ultimately loosened credit requirements far too much, Pinto wrote. The objective to enable greater homeownership might be praiseworthy, but the policies to achieve this have contributed to mortgage meltdowns. History appears to be repeating itself now, Pinto argued.

He urged Congress to intervene by eliminating affordable housing mandates and ensuring that the FHA meets capital standards that have been loosely enforced. 

Written by Tim Mullaney

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