Hair of the Dog

This is pretty incredible.  It's like the last two years didn't even happen.

A national consumer coalition plans to file a series of landmark federal fair housing complaints beginning Dec. 6, challenging a widespread practice by banks and mortgage lenders: requiring borrowers who apply for FHA loans to have FICO credit scores well above the 580 minimum set by the FHA for qualified applicants with 3.5 percent down payments....

Because FHA insures lenders against losses from serious delinquency or foreclosure, there is "no legitimate business justification" for rejecting applicants solely on the basis of FICO scores that are acceptable to FHA, the complaints contend.

Subprime mortgage customers are generally defined as those under a credit score of 620.  I am surprised that anyone in this environment is offering 3.5% down to any buyer  (though here is the government actually advertising the fact).  But giving 3.5% down to subprime borrowers?

Even with the FHA guarantee, banks have learned that the cost of default for them is not zero.  Only someone who has been in a cave for two years could somehow ascribe this action to discrimination rather than an obvious reaction to the ongoing mortgage crisis.  The government is still out acting irresponsibly, and when private institutions (who actually have to live with the cost of their decisions) try to behave like adults, they get hauled into court.

By the way, this sure does seem to bolster the argument that community banking standards and the pressure from the government and community groups to drop lending standards played a large role in the housing crisis.  If we are seeing this kind of pressure even after the housing disaster, what kind of pressure was at work, say, in 2005?

Via Mark Calabria, who has more

Update: Flashback

"In 1995, HUD announced a National Homeownership Strategy built upon the liberalization of underwriting standards nationally. It entered into a partnership with most of the private mortgage industry, announcing that "Lending institutions, secondary market investors, mortgage insurers, and other members of the partnership [including Countrywide] should work collaboratively to reduce homebuyer downpayment requirements."

The upshot? In 1990, one in 200 home purchase loans (all government insured) had a down payment of less than or equal to 3%. By 2006 an estimated 30% of all home buyers put no money down.

"The financial crisis was triggered by a reckless departure from tried and true, common-sense loan underwriting practices," Sheila Bair, chair of the Federal Deposit Insurance Corporation, noted this June. One needs to look no further than HUD's affordable housing policies for the source of this "reckless departure." If the mortgage finance industry hadn't been forced to abandon traditional underwriting standards on behalf of an affordable housing policy, the mortgage meltdown and taxpayer bailouts would not have occurred."


  1. Ignoramus:

    This is just the initial agitation -- an activist group saying that it's going to sue.

    The real action happens when the new federal Consumer Finance Protection Bureau adopts anti-discrimination rules that will result in de facto race and gender-based quotas for credit. The Civil Rights Act wasn't supposed to impose quotas on hiring either, but it did.

  2. Fred from Canuckistan:

    Going forward maybe they should be called "Groundhog Day Mortgages"

  3. Keith Weiner:

    Speaking of mortgages and the housing bubble, here is a short animated video I did talking about inflation, prices, bubbles, booms, and busts:

  4. Methinks:

    I'm surprised that you're surprised.

    This is a typical government redistribution program which (as they all do) rewards profligacy and failure. The victims of these programs rebel and are public skewered. Pretty typical leftist, destructive crap.

  5. Rick Caird:

    Government is always slow to learn because most of the people making the decisions are insulated from the consequences of those decisions. After Fannie and Freddie essentially went bankrupt over buying mortgages with little to no down payment, it is amazing someone thought it was a good idea for the FHA to take up the slack.

  6. Mesa Econoguy:

    What Methinks said.

  7. Doug:

    Whatever the conclusion is, it's W's fault.

  8. epobirs:

    I would truly hope, in a sane world, that the court told them to go bugger themselves. Why should a lender be forced to do business with anyone it regards as a bad risk? I'd actually like to see a company openly advertise that it only handles those with at least a 720 FICO and 10% down. Such a company would be a fantastically stable investment.

    I just finished listening to Matt Taibbi's Griftopia. While there is a lot of interesting coverage in there, Taibbi shows himself to be an utter hateful jerk. He actually blames the passage of the steaming pile known as Healthcare Reform on the Republicans! His rationale is that after the Republicans attacked the bill with what he terms 'lies' without any detailing of the supposed lies, the Democrats with objections to the bill couldn't speak up for fear of being lumped in with the Republicans. Hey Matt, how about you cut to the chase and just say that those Democrats were craven cowards. With a strong majority in the House, that is the real reason any resistant Democrat failed to speak up.

    Taibbi's other great failing is to regard the poverty pimp aspect of the story as a red herring. Instead he blames the banksters from start to finish. What he fails to see is that the 'everybody should own a home' activism was a major contributing factor in providing cover for the bankster's activity. Many of those who should have been raising public inquiry chose not to so long as it was benefiting the poor. But like so many ill conceived attempts to aid the poor it only set up the intended beneficiaries for failure with long term consequences.

    Ultimately Taibbi' is operating with blinders due to his inability to be objective and contain his hatred for anyone on the right long enough to notice when they have a point. Instead, all he sees is the Right blaming poor minorities when that is simply not the case. They were just people being used as pawns by those doing the real harm.