I’ve said it time and again that former President Bill Clinton is responsible for the economic crisis that began during the end of President George W. Bush’s second term of office and into the start of President Barack Obama’s first term.
During the Clinton years, he pushed the mortgage industry into creating a number of risky mortgage programs that would allow more Americans to qualify for mortgages and get into homes. They pushed the adjustable interest rate mortgages, no interest rate for first few years’ mortgages and balloon mortgages among others. Millions of Americans suddenly were able to obtain a mortgage and get the home of their dreams.
With a boom in mortgages came a boom in the housing and construction markets. With a boom in those sectors, the rest of the economy grew and everything looked rosy, making Bill Clinton look like the economic wonder boy and hero to all.
Then five to seven years down the road, all of those adjustable rate mortgages adjusted upward and millions of homeowners discovered that they could no longer make their mortgage payments and were unable to refinance their loans. At the same time, time ran out on the no interest rate loans and now the interest was due along with the principle and millions of homeowners could no longer afford their mortgages and were unable to refinance.
Millions of American’s ended up in foreclosure and bankruptcies hit an all-time high. The housing market crashed taking the rest of the economy and jobs with it. By the time the crash hit, George W. Bush was president and everyone pointed the fingers of blame at him for the economic woes. The house of cards built by Clinton collapsed under Bush and few people realized it was Clinton’s fault to begin with.
Now, it seems that Obama has taken lessons from Clinton and is calling on big banks and the mortgage industry to once again open their doors to higher risk mortgages and put more Americans back into homes. The administration is asking them to consider ways to make loans available to those who had their credit records hurt by the recession and to first time home buyers.
The Obama administration is trying to get the big banks to use things like taxpayer-backed programs offered by the FHA and others that will insure the loans against default. They are also trying to get the DOJ to provide some kind of assurance that the big banks will not face any kind of legal or financial ramifications for providing mortgages to higher risk people, like what happened to Countrywide.
In addition, the administration is asking banks to help more homeowners to refinance their current mortgages at the current low rates, even though they owe more than the home is worth.
If Obama gets his way, millions of homeowners, many of whom lost their homes in the last housing collapse, may be able to once again obtain a mortgage and put a roof over their family’s head. Obama is hoping that such a boom would revive the housing market and as we all know: as the housing market goes, so does the rest of the economy.
Chances are a fair number of these new mortgages will be some kind of adjustable rate mortgage with the rates adjusting in 3-5 years. In the meantime, Obama will come out looking like an economic hero to many. Then if there is another election in 4 years, it will be just about time for all of those adjustable rate mortgages to start increasing. How many of these homeowners will be able to afford the higher rates at that time is yet to be seen, but undoubtedly, the blame for another housing market collapse will fall on the next presidential administration and not on Obama.
The Democratic president creates the problem and then the Republican president gets the blame when the problem manifests itself. They say that history repeats itself and it looks like that might be the case in the mortgage and housing markets.