Who knew that when the United States elected Donald Trump as president, we would get Bill Clinton’s mortgage-lending policies?
That is what is starting to happen as the Federal Housing Administration is now (to quote the Wall Street Journal) “vastly expanding the scope of condominium purchases eligible for lower-down-payment loans.” Noting that “FHA-backed loans require only a 3.5% down payment and lower credit score than conventional loans,” the Journal notes that the Trump administration’s decision “also loosens financial-crisis-era rules and could expose the government to a higher likelihood of loan default if the housing market continues to slow and prices fall.”
As a reminder, these are sorts of policies that conservatives consistently have blamed for causing the financial crisis of 2008-09. The basic criticism goes like this: When the government artificially boosts a major sector of the economy by encouraging greater and greater risk, the predictable result is that the risks become unsustainable, leading to a systemic collapse.
It’s pretty simple, really. Yet, this is exactly what the Trump team now is doing. Admittedly, this is on a smaller scale than under Clinton, but this new move takes us in the same general direction and on a not-inconsiderable scale.
The Journal quoted David Stevens, retired chief executive of the Mortgage Bankers Association, to this effect: “FHA is already a higher-risk program. Layer that on top of a higher-risk product called the condominium, and you definitely have to prepare yourself for the fact that in the next correction you’re going to take more losses at FHA than anywhere else.”
Or, as Kevin Williamson wrote at National Review Online, “Unpredictable economic weather: What better time to put the American taxpayer on the hook for a brand new batch of dodgy condo loans for some scrubs with bad credit who can’t be bothered to save up a proper down payment? Everybody makes mistakes. Making the same mistake over and over again is stupidity.”
This new action comes on top of the zero-down-payment home loans already available through the U.S. Department of Agriculture. Yes, you read that right: zero down payment. The Trump administration has formally proposed kneecapping this program for three years running, but when Congress balks, the administration caves.
The goal of policymakers should not be to help everybody who needs short-term help. The goal should be long-term stability that doesn’t build large risks for systemic collapse. As we saw in the 2008-09 crisis, it is the very people supposedly helped by the risky policies who suffer most when the system collapses along with their own household finances and mortgages.
The Trump administration should reverse this decision before its damage becomes irreversible.