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What are HUD’s priorities?

September 16, 2014
by admin

The new housing secretary has delivered his first major speech since taking office, and he doesn’t give us much of a reason to feel optimistic. He wants to do a lot of things, but what’s his top priority? He doesn’t say.

Julian Castro, former mayor of San Antonio, has been the secretary of Housing and Urban Development since July. Yesterday he spoke at the Bipartisan Policy Center’s housing summit in Washington. And he started out by saying something that annoyed me but probably delighted the audience: “The best place to start is homeownership. In fact, it’s time to remove the stigma associated with promoting homeownership.”

What stigma?

If you live on the east coast, the revolting noise you just heard was the sound of me retching while laughing in disbelief. I hate it when non-victims play the victim card. “… The stigma associated with promoting homeownership”? What in the world is Castro talking about?

I don’t know. He does say, later, that “some believe it was too easy to get a home loan” during the boom, and that “today it’s too hard.”

When Castro says that “some” believe it was too easy to get a loan during the boom, who are the others who don’t think it was too easy to get a loan in those days? I’d love to discuss the matter with these folks.

Why your loan officer had a mirror on the desk

During the boom, lenders joked that the only requirement for getting a mortgage was the ability to fog a mirror. It was an uneasy joke. Lenders knew they were doing something dangerous and unsustainable. But in the absence of government regulations that would force them to underwrite mortgages sanely, they persisted in their risky behavior. Then the taxpayers had to bail them out. Remember this whenever lenders complain about “burdensome regulation.” They couldn’t restrain themselves during the easy-money days, and now they chafe against restraints.

The ol’ pendulum cliche

Castro says that it’s too hard to get a mortgage nowadays. But I don’t see tight loan standards as stigmatizing homeownership. Tight loan standards stigmatize default.

“The pendulum has swung too far in the other direction,” Castro says. “According to the Urban Institute, the average credit score for loans sold to GSEs this year is roughly 750. Currently, there are 13 million people with credit scores ranging from 580 to 680. Many of them are ready to own, but are being left out in the cold.”

I disagree that people with credit scores of 580 or 600 or 620 are “ready to own.” Maybe a few of them are, but most aren’t. I prefer to look at this issue at the micro level rather than the macro level: Pick, at random, someone with a credit score of 600. Look at his or credit report. If it was your money, straight out of your bank account, would you lend this person hundreds of thousands of dollars? I sincerely doubt you would, unless you could afford to lose a few hundred grand.

Let borrowers prove themselves

When people say it’s too difficult and expensive for people with 620 credit scores to put 3.5 percent down and get FHA loans, I just shake my head. Let ’em wait and pay their bills on time for a year or two.

Political correctness

Then Castro makes the politically correct statement that every “serious” person is expected to utter: “A government-dominated market is unsustainable.”

Government officials, bank executives, politicians and pundits say this all the time, but they never explain why a Fannie- and Freddie-dominated mortgage financing system is unsustainable. The system we had 10 years ago — in which Fannie Mae, Freddie Mac and the FHA were marginalized, and subprime loans were securitized willy-nilly — proved unsustainable. It collapsed and the taxpayers picked up the pieces.

I can see where people might not want a Fannie- and Freddie-dominated system. But “undesirable” isn’t the same as “unsustainable.”

Castro does say that he wants to reform FHA policies that punish lenders too harshly for minor errors. That definitely needs to be done, pronto.

The rest of Castro’s speech is unfocused. He calls for a HUD “codeathon,” preserving affordable housing, job training, broadband access and “evidence-based practices.”

He might have this job for a little more than two years. What’s one thing that he most wants to accomplish? We don’t have a clue.

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