The US Government begged on banks to make loans easily available to borrowers with weaker credit scores. The government believes that such a move is expected to help improve the country’s economic standing.
However, economy experts say the risky lending being initiated by the Obama administration will lead to another crash in housing.In a report, it was found out that the housing rebound left too many people behind, which included younger people who are looking to buy their first homes.
To address the problem on housing rebound, the government urged banks to lend to borrowers through the taxpayer-backed programs. The Federal Housing Administration was also encouraged to offer loans.
Another housing rebound?
Several analysts say the administration should reconsider their plans in order to avoid the times of the recession, where the country faced a steep drop in housing because of reckless loaning.
The decision of the government stems from the surge in the housing market as of last year. But the said surge only brought benefits to established homeowners with higher credit scores and investors with soaring number of recent purchases. John Taylor, head of a nonprofit housing organization, said it is difficult for low-income households and communities to refinance or buy new homes.
To stop the housing drought, government officials urged the Justice Department to provide guarantees to banks that they will not be beset with legal and financial countercharges. Officials said banks should, in turn, offer loans to borrowers who meet the standards set by the government. Further, banks are encouraged to be more subjective in offering loans at lower interest rates.
Is the Obama administration opening the floodgates of risky loans?
During his State of the Union Address last February, President Barack Obama promised that more Americans would reap the benefits of the housing recovery. As the housing market made steady gains, the president said it is time for ordinary families to buy their own homes buy loosening things a bit.
Obama also discussed that a bill, which is currently in Congress, would give every responsible borrower a chance to have their homes refinanced through private loan companies.
Ed Pinto, an ex-top executive at mortgage company Fannie Mae, said the plan is too risky and could only send Americans to a similar road that they have been trying to recover from.