Fox Business

Buy A Home, No Money Down!

Fox News / Business — Sunday, December 19, 2010

By John Stossel

My new special - Politicians' Top 10 Promises Gone Wrong - airs again tonight. One of their failed promises is that if government fosters home ownership, that will benefit most everyone. President Clinton even claimed:

"Our homeownership strategy will not cost the taxpayers one extra cent."

Bush was on board:

"We want more people owning their own home. It is in our national interest."

Most politicians agreed. But those conceits, like so many others, went horribly wrong.

When the housing bubble popped and millions lost their homes many blamed greedy bankers. Senator Bernie Sanders complained that:

"Outrageous greed, recklessness and illegal behavior on Wall Street caused the horrendous recession."

But economist Russ Roberts has it right when he points out that "greed has been around since about the Garden of Eden."

The problem was that government made it harder for bankers to do the right thing. If a banker stayed with safe loans, he missed out on profit he could make selling lots of high-risk loans to Fannie Mae and Freddie Mac.

This chart from Roberts shows how Fannie and Freddie, at Congress's urging, bought more and more loans with low down payments:

image

By 2005, 43 percent of first-time buyers got homes by putting no money down.

Another law that caused nasty unintended consequences, the Community Re-investment Act, allowed community groups like ACORN to pressure banks to loan money to people with dubious credit records. If the banks declined, their requests to merge could be denied.

Another group that pressures banks is called New Jersey Citizen Action. Executive director Phyllis Salowe-Kaye tells me on the show tonight:

"We said to banks: 'you have to make special products that are affordable to low and moderate income people particularly women and minorities' ... any bank merging... knows they have to come and talk to us."

A bank making loans has to come and talk community activists? Sounds like extortion to me.

Because the housing bubble hurt so many people, it is tonight's politicians' promise gone wrong number 2. Tune in at 9pm for number 1.

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