Economist Peter J. Wallison, who lobbed a blistering attack on the government’s Financial Crisis Inquiry Commission’s findings, says another housing bubble is looming on the horizon.
While the 2007-08 subprime mortgage collapse has receded and the housing industry is making a comeback of sorts, Wallison is warning Washington that the blunders of the past are being repeated and yet another bubble “is beginning to grow again.”
Wallison, a senior fellow at the American Enterprise Institute who was on the 10-member commission, was sharply critical of its findings which placed much of the blame for the crisis on the financial community and the banking industry.
In a bitter dissent from the commission’s majority report, he placed a large part of the blame on powerful members of Congress who pushed “affordable loans” legislation on the mortgage industry that allowed millions of Americans with shaky finances to purchase homes they couldn’t afford with little or no money down.
Last week, in an op-ed column in The New York Times, Wallison sounded the alarm, declaring, “Today, the same forces are operating” once again in the government.
“The Federal Housing Administration is requiring down payments of just 3.5 percent. Fannie and Freddie are requiring a mere 5 percent,” he wrote.
“According to the American Enterprise Institute’s National Mortgage Risk Index data set for Oct. 2013, about half of those getting mortgages to buy homes — not to refinance — put 5 percent or less down.”
“When anyone suggests that down payments should be raised to the once traditional 10 or 20 percent, the outcry in Congress and from brokers and homebuilders is deafening,” he said. “They claim that people will not be able to buy homes. What they really mean is that people won’t be able to buy expensive homes.”
“When down payments were 10 to 20 percent before 1992, the homeownership rate was a steady 64 percent — slightly below where it is today — and the housing market was not frothy. People simply bought less expensive homes.
“If we expect to prevent the next crisis, we have to prevent the next bubble, and we will never be able to do that without eliminating leverage where it counts among home buyers,” he said.
Donald Lambro is a syndicated columnist and contributor to The Washington Times.