Lending Into the Private Market


Today, the Wall Street Journal wrote about comments made by an Obama housing official about the cause of the meltdown that led to our worse recession in decades.

The administration official said that in an attempt to move affordable housing lending into the private market and out of the hands of the federal government, Fannie Mae and Freddie Mac loosen the rules so much that it caused the economic collapse.

The Journal, like many economist, is paying attention to what Obama’s team thinks caused the crisis, because it believes it will predict how the administration will revamp Fannie and Freddie next year and how that will affect all of us in the industry.

Frankly, it’s hard to predict what is going to happen when the administration tackles this legislation. A lot can change in a year. Just look at the year between 2006 and 2007 and then again in 2008. Few predicted the collapse.

But it is safe to say that if Fannie and Freddie are revamped by the Feds, then there will be consequences.

The Journal had 62 people post comments about the piece and many of those posts blame the mess on the “evils of capitalism” and the supposed horrors of profit.

I couldn’t disagree more.

Privatizing cheap loans was not the problem and never will be. Making home ownership available to as many people as possible only helps our society and builds stronger communities.

However, we needed better legislation and a different set of rules that truly target the culprits of poor lending and doesn’t strip away all that was good about making loans more available.

Let’s start by realizing that incomes, savings and debt-to-loan ratios should always be part of the equation and shouldn’t be weaken variables by adding words like “stated income” and “zero down.”

But that doesn’t mean that private lenders shouldn’t be in the business of lending to those who qualify for affordable housing.

Private lenders, if regulated properly, can do a great job within this market, and should be in it.

Let’s hope that when the administration tackles this issue next year, that they don’t swing the pendulum too far the other way.