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September 22, 2008

Incredible: Barney Frank Still Pushing for Dangerous Loans

Even as America totters on the brink of a depression caused by Barney Frank's determination to guarantee spectacularly ill-advised loans, he's still fighting for more.

A bare-minimum bit of reform was suggested. Barney Frank stamped down his pudgy feet in protest.

[T]he public sector somehow feels it can continue to ignore reality—at least for a little longer.

The committee, chaired by Massachusetts Rep. Barney Frank, took steps to gut a modest reform of the bad lending policies that helped get us into this mess. By voice vote, members moved to overturn a ban on something called “seller-financed down payments” for some government-guaranteed mortgages. Congress largely banned government support for such mortgages just two months ago at the request of the Federal Housing Administration.

The FHA and the Department of Housing and Urban Development have provided ample evidence that these loans are just too risky for taxpayers to take on. Under a seller-financed down payment, a homebuyer doesn’t put any money down. Instead, the seller, usually a property developer, provides the homeowner with funds to prod along the sale of the house. The first problem with this approach is that it gives the homeowner little incentive to negotiate on the purchase price of a home, since it seems to him that he’s getting a good deal—after all, the developer is kicking in thousands of dollars, which seems generous. The developer in turn finds it easier to charge an inflated price for the house, making it more likely that the government won’t get its money back if the home ever goes into foreclosure. And in fact the homeowner is more likely to default: since the value of the home is quite likely inflated, he is more likely to have difficulty selling it for the price he paid if he runs into financial trouble. Having none of his own money at stake, he also has less incentive to struggle to make his payments.

Hardcore lefties are fond of saying the worst it gets, the better it is. The idea being that our evolution to full socialism and communism can only happen if capitalism results in catastrophe. And bitter little communists like Barney Frank are more than happy to speed along that catastrophe.

Thanks to Dave @ Garfield Ridge.

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posted by Ace at 01:36 PM

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