AEIdeas
By James Pethokoukis
May 14, 2014

After a near-depression and worst-ever financial crisis that cost the US economy as much as $14 trillion, one might think Washington would be careful to avoid repeating the same policy mistakes. One might think, for instance, Washington would think twice and then thrice before loosening mortgage lending standards to boost home ownership, particularly among low-income borrowers. Because, you know, loosened mortgage standards seem to have played some role in helping set the stage for the catastrophic mortgage meltdown.

Recall three conclusions from the National Commission on the Causes of the Financial and Economic Crisis in the United States:

1.) From the majority report: “We conclude collapsing mortgage-lending standards and the mortgage securitization pipeline lit and spread the flame of contagion and crisis.”

2.) From one of two dissenting reports: “The causes of the mortgage bubble and its relationship to the housing bubble are also still poorly understood. Important factors include weak disclosure standards and underwriting rules for bank and nonbank mortgage lenders alike, the way in which mortgage brokers were compensated, borrowers who bought too much house and didn’t understand or ignored the terms of their mortgages, and elected officials who over years piled on layer upon layer of government housing subsidies.”

3.) From the other dissenting report by AEI’s Peter Wallison: ” … I believe that the sine qua non of the financial crisis was U.S. government housing policy … which sought to increase home ownership in the United States through an intensive effort to reduce mortgage underwriting standards.”

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