The housing mess has a long history

We've all seen the pressure to lower standards and make homeowners of people who can't save the downpayment, can't pay the mortgage, can't meet the minimum standards, but I was unaware how far back government interference in the housing market went--back to the early 1920s with Herbert Hoover when he was Secretary of Commerce. Or even 1913, if you figure the home mortgage deduction. And I knew about rent controls creating an artificial "housing shortage" after WWII. I knew what had been required of us even with our first home purchased in 1962, but we never used FHA or VA, and sort of assumed that's the way it was until the 70s or 80s. Guess not. There's a lot I didn't know about how housing became a political football for both parties and invited crime and corruption to flourish. Catch up on the history beginning with Hoover, and follow it all the way up to now. See Obsessive Housing Disorder.

"The next stop on the road to 2008 was a fateful campaign to lower lending criteria, which, the housing advocates argued, were racist and had to change. The campaign began in 1986, when the Association of Community Organizations for Reform Now (Acorn) threatened to oppose an acquisition by a southern bank, Louisiana Bancshares, until it agreed to new “flexible credit and underwriting standards” for minority borrowers—for example, counting public assistance and food stamps as income. The next year, Acorn led a coalition of advocacy groups calling for industry-wide changes in lending standards. Among the demanded reforms were the easing of minimum down-payment requirements and of the requirement that borrowers have enough cash at a closing to cover two to three months of mortgage payments (research had shown that lack of money in hand was a big reason some mortgages failed quickly).

The advocates also attacked Fannie Mae, the giant quasi-government agency that bought loans from banks in order to allow them to make new loans. Its underwriters were “strictly by-the-book interpreters” of lending standards and turned down purchases of unconventional loans, charged Acorn. The pressure eventually paid off. In 1992, Congress passed legislation requiring Fannie Mae and the similar Freddie Mac to devote 30 percent of their loan purchases to mortgages for low- and moderate-income borrowers."

So we're doing more of the same, trying to refinance these failed homeowners, offering rock bottom rates, wondering why it isn't working?

"As Harvard economist and City Journal contributing editor Edward Glaeser has observed, mortgage lenders have finally “recovered their sanity”—only to have government dangling subsidized low interest rates and tax credits in front of them and their potential customers all over again. Behind these efforts is a fundamental misconception among politicians that housing drives the American economy and therefore demands subsidy at virtually any cost."

The author points out the damage the home mortgage deduction has done, as well as other government subsidies, regulations and programs. Good article. And Obama owes ACORN big time, so we're in for more of the same on the road to "recovery." Go read it.