“Those who do not learn from history, are bound to repeat it.” Joe Biden just announced that in an effort to increase home ownership among minority and disaffected groups, the federal government will be implementing a new federal rule which will impose higher mortgage fees on people with credit scores above 680, and those fees will be used to subsidize the mortgage fees for people with credit scores below 680. So, people who acted responsibly, didn’t take on too much debt, and paid their bills will be punished, and those who acted irresponsibly, who took on too much debt, bought things they couldn’t afford and subsequently did not pay their debts, will be rewarded.
On the surface, this rule appears to be a redistribution of wealth scheme predicated on race. For whatever reason, white communities had an average credit score of 727 in 2021, while Hispanic communities’ scores were 667 and Black communities were 627. So, this rule will transfer wealth from white communities to black and Hispanic communities for no legitimate reason. If a disproportionate number of people with a credit score lower than 680 were white, I wonder if this rule would have even been considered. When you view every problem through the lens of race, you end up with illogical solutions like this.
I thought we learned this lesson fifteen years ago. But once again, the Democrats are creating artificial rules in the mortgage industry to encourage home ownership among minority groups. The roots of the 2008 banking crisis started back in the Clinton administration when HUD attempted to increase home ownership among minority groups by changing the rules of lending (sound familiar?). HUD concluded that the disparity in home ownership between the races was a result of systemic racism in the mortgage industry. They claimed that the rules and requirements that governed the mortgage approval process that had been set in place by Fannie Mae, such as credit score, down payment, job history, debt and income were not designed to prevent mortgage defaults, but were actually, a new and nefarious way of re-instituting red lining against minorities.
That was their contention. So, in the late 1990’s, Fannie Mae started repealing the rules of lending that were used to weed out the mortgage applicants who were most likely to default on their loans. Suddenly, there was an influx of new home buyers in the market, because there was a dramatic increase in the number of people who could now qualify for a mortgage. And these new mortgages were given an A, AA, or AAA rating from Fannie Mae, even though many of the borrowers had not been able to qualify for a mortgage previously. So, what was the result?
Predictably, there was a housing boom. Home prices and new home building skyrocketed. But when many of the mortgages, especially to those who had previously not qualified a loan, began to default, our banking system teetered. Our mortgage lending system is predicated on having a less than 4% default rate on their loans, but the changes to the rules of lending by the government, created a 28% default rate in 2008, which was unsustainable. And because these mortgages were A, AA, and AAA rating, they had been tied to mortgage back securities as an investment instrument. So, when the mortgages began to default, not only was the housing market crushed, but the banking system began to fail and then collapsed which cause the 2008 economic downturn.
Instead of learning from that history, the Biden administration is doubling down on that history. But this is what happens when you view everything through the lens of race. You make really bad decisions, and you end up hurting a lot of people, especially the people you claim you’re trying to help. In 2008, many of the people who were approved of mortgages who did not actually qualify for them, were black and Hispanic, and when their mortgages went into default, they lost everything. They ended up worse off than if they had been denied a mortgage in the first place.
This current non-sensical rule is the result of politicizing every crisis. Instead of taking a step back and understanding the root causes of the 2008 banking crisis, the Democrats, in order to score political points, falsely blamed it on George W Bush’s tax cuts and greedy bankers. When you place blame on someone else for your mistakes for political purposes, you cannot learn from your mistakes because you never identified your mistakes, and you will most likely repeat them. And that is exactly what we are seeing. Why would we even be considering similar types of policies that have already caused an economic catastrophe?
Biden and the political class have a history of rewarding bad behavior. The student loan bailout that he tried to implement does exactly that. He wanted the taxpayers to pay college graduates’ student loans debt. He wanted people who acted responsibly and paid their debts, to bail out people who irresponsibly took on too much debt. All that student loan bailout will do is encourage colleges to increase tuition and the students to take on more and more debt. We have seen this in the banking industry time and again. The government bails out certain banks when their poor decisions get them into financial problems because they are deemed too big to fail. So, with a safety net like that, banks are encouraged to act irresponsibly knowing that the government will bail them out, and the taxpayer will foot the bill.
Our country prides itself in being a meritocracy. We believe that people should earn their way and enjoy the fruits of their success. But a meritocracy cuts both ways. If you benefit from your successes, you must be willing to accept the consequences of your failures. Too often, we privatize our successes and socialize our failures. The more we subsidize poor choices and bad behavior, the more-poor choices and bad behavior we will get.
Judd Garrett is a graduate from Princeton University, and a former NFL player, coach, and executive. He has been a contributor to the website Real Clear Politics. He has recently published his first novel, No Wind.