What could possibly go wrong with giving loans to people who can’t afford the payments?
The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.
President Obama’s economic advisers and outside experts say the nation’s much-celebrated housing rebound is leaving too many people behind, including young people looking to buy their first homes and individuals with credit records weakened by the recession.
Blog: Obama administration pushing home loans for people with bad credit
Banks and mortgage companies are extremely leery of lending to these customers because the Dodd-Frank financial reform bill criminalized the process. If a consumer defaults on a loan, they can go to the new enforcement agency, the Consumer Financial Protection Bureau, and lodge a complaint against the lender that they were had – they didn’t understand the terms of the loan. If found guilty, the offender can go to prison for a long time. This is a decided discouragement against giving loans to people who are likely to default.
So what’s the rush? if consumers have “weak” credit as a result of the recession, let them build it back up by living within their means and paying their bills on time. And why should the taxpayer be on the hook for someone who has demonstrated in the past that they are irresponsible?