President Obama and Democrats in Congress haven’t moved to stop subprime lending — they’ve just taken it over

Posted on September 28, 2010

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President Obama and Democrats in Congress haven’t moved to stop subprime lending — they’ve just taken it over.

They’ve created a federal subprime-lending monopoly by seizing control of the financial apparatus — Fannie Mae, Freddie Mac and the Federal Housing Administration — and lending 100 percent of the home price to borrowers who can’t afford it.¬†Private lenders can’t make these loans — they need to get paid back.

Fannie had forged a subprime partnership with state housing-finance agencies called “Affordable Advantage”: Fannie agreed to buy loans from housing-finance agencies for which the buyer puts down $1,000 or less — in at least one case, just 67 cents.

Obama and the Dems haven’t limited their subprime takeover to the GSEs. The Federal Housing Administration insured 29.4 percent of all home purchases in 2009, up from just 4.5 percent in 2006.

To insure a loan, the FHA requires a downpayment of 3.5 percent — but also it allows “seller concessions” of 6 percent. In other words, if the seller’s willing to mark up the official price by 6 percent and then put that amount to the downpayment, the buyer doesn’t have to come up with any cash. There’s talk about reducing allowable seller concessions to 3 percent — but that would still permit FHA-insured loans of 99.4 percent.

Because the FHA is insuring so many more mortgages than it used to, its capital reserve — the cash it’s supposed to have on-hand in case of a wave of defaults — is at a quarter of the congressionally mandated minimum. But Democrats want the FHA to keep insuring subprime loans, so it’s not enforcing the minimum.

Building the next subprime crisis – NYPOST.com.

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