If at first you don’t succeed, Try, try again…
Concerned that foreclosed subprime borrowers won’t qualify for another home for years, housing-rights groups want banks to offer them “dignity mortgages.” Here we go again.
This is the left’s latest scheme to make amends for its disastrous experiment to socialize mortgages for people who could not afford homes before the crisis and should never have been approved in the first place.
But it won’t end any better, especially for the inner-city minorities whose credit the left’s already ruined.
Housing activists’ new bright idea is approving home loans for people who have rebuilt their finances since losing their job and their homes during the crisis, but who still have bad credit.
Though required to make a down payment, inner-city housing groups could front them the money.
This new type of loan they’re pitching to bank regulators would come with a higher rate to cover the higher risk.
But it would be capped so that deadbeat borrowers would pay only up to 1.25 percentage points above creditworthy borrowers.
So if, for example, a customer with sterling credit and 20% down payments got a 3.5% fixed rate, the risky applicant would get OK’d for 4.75%.
But if he made timely payments for five years, the rate would drop to 3.5%, and the extra money paid in interest would be used to reduce the mortgage balance.
Only, the borrower doesn’t always have to pay. If he loses his job or his spouse, a “reset clause” lets him suspend payments temporarily.
But here’s the real kicker: Fannie Mae and Freddie Mac eventually would be required to take the loans off banks’ hands.
That’s right, those same failed government wards that epically collapsed and brought down the entire mortgage industry with them after taking on too much subprime risk before the crisis.
The so-called dignity mortgage is the brainchild of Greenlining Institute’s Bob Gnaizda and Operation Hope’s John Bryant, who worry low-income blacks and Latinos are being denied credit in the wake of record subprime defaults.
They cite recent Fed lending data that show just 4% of all home loans were made to African-Americans, who make up 13% of the population, and 6% to Latinos, who represent 16%.
Ignoring credit-score data explaining the shortfalls, they charge that banks are “redlining” minorities again.
Redistributionists At Work
Both groups have redistributionist agendas. Greenlining is a Berkeley, Calif.-based anti-redlining group that before the crisis shook down banks for subprime mortgages for minorities with bad credit.
Recently, it argued for expanding the Community Reinvestment Act — a prime suspect in the lending debacle — to correct racial “inequities” in everything from stock ownership to business contracts to employment.
Bryant, meanwhile, is a major Obama supporter.
As IBD first reported, his inner-city group is a one of the recipients of millions in payola extorted from banks by Attorney General Eric Holder during his witch hunt over “lending discrimination.”
“You get your dignity back,” Bryant told foreclosed borrowers, “a chance to reset your life without being called a bum or your credit ruined.”
Don’t fret, he and Gnaizda tell worried bankers, they’ll make sure this new class of superdeadbeat applicant gets financial counseling.
This time, they promise needy borrowers will pay their bills, and in exchange for their altruism, lenders will get CRA credit from regulators.
Where have we heard this story?
Dignity mortgages are just repackaged subprime loans promoted by the same radical groups that trapped minorities in them the last time.
Thanks, but no thanks. We don’t need a sequel to this financial horror show.