Brian Moynihan made some comments in Washington D.C. that I hope continue to echo around the congressional city.
If you don’t have time to read the full article, allow me to summarize:
Quote 1: “…the Federal Government shouldn’t push homeownership as a universal goal…”
Quote 2: “…of the bank’s 270,000 employees, about 50,000 are working on delinquent mortgages.”
Quote 3: “A roof over one’s head doesn’t have to come with mortgage debt…and in many cases shouldn’t.”
(I’m not too concerned with the statistic in Quote 2, but DEEEYAMN! That’s a staggering number.)
By now, you should all know my thoughts on homeownership. I have forever questioned whether homeownership should still be the American dream, so it should be no surprise that I wholeheartedly agree with Mr. Moynihan’s mantra.
The Housing Bubble
We could spend hours debating what specifically caused the housing bubble, but that’s not the point of this article. I will, however, tell you what didn’t help the situation: the belief that EVERYONE should own a home.
I feel that banks (such as Mr. Moynihan’s) have received some undeserved blame for the unforgettable mortgage mess. Blaming the crisis on Capitalism (and/or greedy banks) would lead me to believe you’re ill-informed, as the government’s growing participation has given us anything but free markets.
The expansion of risky mortgages to under-qualified borrowers has been highly encouraged by the Federal Government. A combination of the CRA, FHA, and HUD has led to the extension of credit to these (usually) unqualified borrowers.
To simplify: rather than needing a credit score of 700 and a down payment of 20% to purchase a house (700 is an overestimate of a minimum acceptable FICO score), a borrower could have a credit score of 580 and a down payment of 3.5%
One of my favorite quotes of all time comes from Chairman of the House Financial Services Committee, Barney Frank. You may recognize his name from the recent “Dodd-Frank” legislation.
On September 25, 2003:
“I do not want the same kind of safety and soundness that we have in OCC and OTS. I want to roll the dice a little bit more in this situation towards subsidized housing.”
(talk about a quote that will come back to haunt you)
As always, you are all able to formulate your own conclusions. I’m assuming that some of you will agree (with me) and some will not, which is expected. But regardless of how you feel, promise me you will watch this video (it only lasts a minute).