The Biden Administration seems willing to implement any failed program from the past. The Federal Government has pressed the second-largest bank in America to start a program for first-time homebuyers in black and Hispanic communities. Bank of America Corp. will offer mortgages to home buyers without closing costs, down payments, or minimum credit scores.
This program will target particular areas in Dallas, Detroit, and Los Angeles as well as Miami and Charlotte. To qualify borrowers for mortgages, the bank will use credit scores relating to rent, utility and phone payments. These Democrat districts will give down-payment grants of $10,000-15,000 to homebuyers. Then, like magic, they’ll have instant real estate equity!
Do Washingtonians remember the subprime mortgage disaster that Bill Clinton and Andrew Cuomo, his boy-wonder HUD director, orchestrated? Andrew Cuomo, of COVID-19 fame, is still alive and well. He was a veteran of poor decision-making before he became New York governor. His system pushed banks to give loans that were more based on racial equity and less on balance sheet integrity. Affirmative-action results were required to qualify for loans. The 2007 national financial meltdown and the housing bubble led to a huge decline in the country’s finances. It also punished those who were meant to benefit from it. Many borrowers were left with poor credit scores, which further locked them in poverty.
Lending money to people who don’t have the financial ability to repay it back works best until there is a housing market crash. When housing prices fall and the bubble bursts there is no incentive to repay the equity. This leaves behind a slew of bankruptcies, evictions, and lives that are broken.
Any loan shark, also known as a credit company, will tell ya that lower down-payment loans are not good for the long term. Lenders demand their pound of flesh upfront by charging exorbitant interest rates. The Biden administration wants banks and lenders to increase their loans to low-equity borrowers in order to reduce credit card debt that reached an all-time high of $930 billion in August. What could possibly go wrong with this plan?
To qualify, borrowers will need to have a certificate from the Department of Housing and Urban Development and counseling. The borrowers do not have to give their race but the selected neighborhood will be dominated by blacks and Hispanics. It would be quite strange if low-income whites wanted to settle in these areas, further destabilizing equity policies. Market inefficiencies can lead to unpredictable outcomes if they are not volatile.
All this sounds like a boom that is waiting to burst. Even if the taxpayers haven’t helped banks in the past, despite poor market decisions, they may be more cautious about policies that result in poor balance sheet performance. Joe Biden might not be around if disaster strikes but any successor will have to clean up the mess if the COVID-inspired housing bubble bursts.