Government Pursues Bad Mortgage Policies with Veterans
Posted by Steve Markowitz on July 17, 2015
Various policies and practices led to the 2008 financial meltdown that nearly took down the world’s economic order. Many were related to the inappropriate use of debt.
Beginning in the mid-1990s, the Federal Reserve began aggressively using low interest rate policies to offset economic downturns. This included the Asian markets’ turmoil in the late 1990s, the Datacom and Dot com busts, as well as the economic downturn caused by 9/11. While these low interest rate policies offered short-term benefits, in the long term they created significantly damage to the economy.
Downturns are a necessary part of economic cycles. They are often caused when supply and demand of goods and/or services go out of balance. During downturns excess goods and services are sold off and depressed prices, which ultimately leads to rebalancing supply and demand and then economic growth as more goods and services are required.
The low interest rate Fed policies, along with governmental bailouts, led to huge imbalances including the housing bubble. With historically low interest rates and lax lending practices, housing prices appreciated on an unsustainable path. Then, when appreciation turned to depreciation, millions could no longer pay their mortgages leading to the collapse of 2008.
Under typical conditions an economic calamity as encountered in 2008 suffices to “teach” a generation to avoid unsound economic practices. However, these are not normal times. After 2008 Federal Reserve and central banks doubled down on the low interest rate policies. While they tempered the effect of the meltdown in the short term, there are responsible for the lackluster recovery, the slowest since the Great Depression.
The American government often uses interest rate policies to implement social manipulation pursued by Progressives. The 2008 housing bubble was fed by the government promoting mortgages to income brackets that could not afford to make the monthly payments. Millions then lost their homes and any equity in them. They would have then better served not purchasing the houses in the first place, but were cajoled into doing so by governmental intervention. However, even this lesson has not been learned.
Once again the government is promoting imprudent mortgage policies, this time to veterans. The company NewDay USA promotes as a benefit in one of the headings on its website newdayusa.com states: “We’re a Different Kind of Lender. As a Veteran, You Can Borrow Up to 100% of the Value of Your Home, Not Just 80%.” NewDay USA goes on to say: ”With up to 100% of your home’s value available, including mortgage balance, you could qualify for thousands of dollars more from NewDay USA.”
NewDay USA could not make this offer without the backing and support of the US government. This crony capitalism not only benefits the stakeholders at NewDay USA, but also places at risk their customers, veterans who served their country. It is imprudent for any homeowner to not have at least 20% equity in their home. This equity cushion not only helps ensure that their mortgage payments will be set at a reasonable level given their income, but it will make it more likely that their homes’ value will remain above the market price during inevitable downturns.
Some politicians back imprudent policies with good intentions, but little understanding of economics; the fools. Others promote such policies for less benign reasons including crony capitalism; the greedy. Neither serve the country well.