Our View | ‘Housing Bubble II,’ the Sequel

Our View

By The Signal Editorial Board

One of the core questions of governance is, should good behavior be rewarded?

We would posit that, in the vast majority of instances — as in, we can’t imagine any exceptions but we’d allow for the possibility that they could exist — yes, absolutely, good behavior should be rewarded. There should be some benefit to doing things the right way, and playing by the rules.

On the other side of that coin, bad behavior should be, if not punished, at least devoid of the benefits one reaps for good behavior. Otherwise, what incentive is there to behave oneself?

President Joe Biden, his administration and other so-called “progressive” politicians are turning that principle on its ear. Whether it’s the whacked-out criminal justice being foisted upon law-abiding society by George Soros-backed district attorneys like L.A. County’s own George Gascón or the dark comedy of intentional errors being perpetrated at our open southern border, we see Biden and like-minded elected officials rewarding bad behavior all the time.

The latest example comes in the form of the new mortgage rules enacted by the Biden administration. As is the case in seemingly all decisions put forth by the Biden administration, it’s being done, all other principles be damned, in the never-ending pursuit of equity —  as in, equal outcomes, not equal opportunity, which by the way are two different things. 

Boiled down to the simplest terms, the president’s new mortgage rules will charge higher fees to borrowers who have good credit, in order to offset fees for those with lower credit ratings, thus making it easier for high-risk borrowers to get into the housing market. 

There’s merit to the goal of helping more people achieve the dream of home ownership. Heavens knows there are lots of worthy would-be homeowners who just can’t afford it. 

But this is the wrong method to achieve that goal, and it punishes good behavior.

Pay your mortgage on time, pay your credit card bills on time, make your car payments on time — and get stuck with a higher cost for your next mortgage. And if you don’t do those things, you’re rewarded with lower costs. 

Go ahead. Skip a car payment or four. We’ll cut the costs on your next mortgage and make all those silly, naive rule-followers pick up the slack for you! There’s a sucker born every day!

This literary nonsense makes us feel as if we’ve fallen down the rabbit hole with Alice. But Biden’s Wonderland is anything but.

The flaws with the Biden mortgage plan are painfully obvious, and can be broken down into two main points:

1) They’re a recipe for financial disaster. Does anyone at the White House remember the 2008 housing bubble?

2) They’re patently unfair.

A group of 18 senators, led by Marco Rubio, R-Florida, and Roger Marshall, R-Kansas, sent a letter recently to Federal Housing Finance Agency Director Sandra Thompson pointing out the flaws in the plan.

“The fact that a proposal flaunting credit risk is being openly pushed by FHFA just a decade-and-a-half after the housing-led 2008 financial crisis is staggering,” the letter read, in part. (You can find the full text of the letter at bit.ly/3MaEnub.)

The senators said the new rules, to be applied by the government-sponsored entities Fannie Mae and Freddie Mac, are a recipe for both unfairness and fiscal disaster.

“This announcement … will invert the common-sense risk financing structure at the GSEs in an effort to decrease mortgage rates for riskier individuals with low credit scores and forcibly raise rates for those with higher scores,” the senators wrote. “This shortsighted and counterproductive policy demonstrates a profound misunderstanding of the necessity of accurately tailoring housing finance products to credit risk and establishes a perverse incentive that punishes hardworking Americans for their fiscal prudence.”

Perverse indeed. 

“Moreover,” the senators added, “your proposal incorrectly assumes that creditworthiness is solely attained by only the affluent, blatantly disregarding the countless lower-income Americans who have demonstrated exceptional financial responsibility. By conflating credit scores with wealth, you not only engage in a gross oversimplification of a complex issue but also perpetuate a false narrative that unfairly maligns hardworking citizens in the lower-income bracket.”

Rubio, Marshall and Co. are correct. The new rules punish good behavior, and reward bad behavior while creating a recipe for yet another economic collapse. 

If you feel like you’ve seen this movie before, that’s because “Housing Bubble I” was caused by lending practices that put millions of people into homes they really couldn’t afford. Catastrophe ensued. The Biden administration is engineering the sequel. 

Cover your eyes, America. “Housing Bubble II” is going to be a scary ride.

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