Pundits are Trying to Bring Subprime Mortgages Back. Don’t Let Them
Pundits and think tanks are trying to bring back subprime lending, spinning it as a virtuous move for the economy. Nothing could be more obviously a terrible idea
Mortgages are hard to get, with demands for high credit scores and a perfect lending history, so some say it’s time to bring back subprime mortgage lending.
This is, obviously, a bad idea. The financial industry has plenty of reasons to offer the same high-risk, high-return loans that made so many bankers rich during the housing bubble before everything crashed. But it’s less clear why any sensible commentator wants to cheer the industry on.
Story after story lately follows the same flawed logic: the shoddy lending that caused the financial crisis has now swung too far in the other direction, preventing deserving people from getting mortgages. The poor or middle class can’t access credit, which is the fault of “over-regulation” of banks.
This strange thinking is becoming more prevalent and commanding larger platforms. For example, Binyamin Appelbaum, in a New York Times magazine story this weekend, wondered if subprime mortgages should make a comeback. “The lending freeze is not just preventing people … from chasing their dreams. It’s bad for the overall economy too.”
Maybe this sounds reasonable to pundits. Lending ran too hot, so obviously now it’s running too cold.
But we should question this perceived wisdom. Instead of just buying the false reasoning that self-interested industry lobbyists whisper in an effort to make regulations disappear, maybe it’s time to look at the other factors holding back the mortgage market.