I don’t know why I felt so insulted by Ben Bernanke’s housing speech yesterday, but it really stuck with me. Probably because he managed to give an entire speech on housing – one that at points implicitly blamed homeowners for their predicaments – without mentioning the word “fraud.” Or saying “I’m sorry.”
It was very much a forward-looking rather than backward-looking speech. But he describes the foreclosure crisis as the prime contributor to the Great Recession without bothering to mention that his agency had oversight responsibility over the mortgage market throughout the inflation of the housing bubble. The Greenspan Fed rejected consumer protection or regulation of any kind as a matter of ideology. And Bernanke wasn’t about to let that fact be known to the Operation HOPE audience. In fact, his message was that originators aren’t writing ENOUGH loans at this point:
Although the decline in the number of willing and qualified potential homebuyers explains some of the contraction in mortgage lending of the past few years, I believe that tight credit nevertheless remains an important factor as well. The Federal Reserve’s Senior Loan Officer Opinion Survey on Bank Lending Practices indicates that lenders began tightening mortgage credit standards in 2007 and have not significantly eased standards since. Terms and standards have tightened most for borrowers with lower credit scores and with less money available for a down payment. For example, in April nearly 60 percent of lenders reported that they would be much less likely, relative to 2006, to originate a conforming home-purchase mortgage to a borrower with a 10 percent down payment and a credit score of 620–a traditional marker for those with weaker credit histories. As a result, the share of home-purchase borrowers with credit scores below 620 has fallen from about 17 percent of borrowers at the end of 2006 to about 5 percent more recently. Lenders also appear to have pulled back on offering these borrowers loans insured by the Federal Housing Administration (FHA).
So Bernanke here is scolding mortgage brokers for employing tight credit standards. He even cites the lack of use of FHA loans. This came on the same day that an audit showed the FHA hitting $16.3 billion in losses, which will lead to the agency seeking taxpayer funds for the first time in history. And Bernanke’s complaint is that lenders won’t write ENOUGH FHA loans!
Bernanke actually blamed onerous regulations for the tightening of credit, including putback risk from the GSEs if the loan went sour. Apparently it’s inappropriate for Fannie Mae and Freddie Mac to check to see if the loans they buy were originated properly. And I love this sentence:
Certainly, some tightening of credit standards was an appropriate response to the lax lending conditions that prevailed in the years leading up to the peak in house prices.
And who created those lax conditions? It wouldn’t be the Federal Reserve, now would it? Maybe the people who missed a $8 trillion housing bubble should shut their mouths about the relative tightness of lending standards. Actually, you’d think they’d recognize that themselves. I don’t think there’s anyone in the country less credible on this topic than a Federal Reserve Board member from 2002-2006.
I really don’t need to go any further on this speech, it’s the same propaganda that we’ve commonly heard – embracing the foreclosure fraud settlement (the one where banks are paying for much of their penalty with other people’s money), the virtue of selling off foreclosed properties to institutional investors, etc. Really him going on about credit standards was all I needed to hear.