Democrats seeking their party’s 2020 presidential nomination are in a competition to see who can give away the most money to the most people and expand government as much as possible – without admitting that the taxes we pay and the national debt would have to skyrocket to fund the giveaways.
The idea seems to be that government has an endless supply of “free” money it can hand out. It’s a fantasy, of course. But if there was a competition for political pandering in the Olympics, the Democratic would-be presidents would all walk away with gold medals.
There are so many Democratic candidates advancing so many loony-left schemes that we’re getting desensitized to the absurdity and unaffordability of them all. And who can even keep track of so many big-spending schemes?
Yet one plan – by Sen. Kamala Harris, D-Calif. – is so extreme and would cause so much harm that it deserves our attention.
Harris wants to spend $100 billion on the worthy goal of increasing black homeownership. She would take the money out of the Department of Housing and Urban Development – which has a proposed budget of $44.1 billion for 2020.
Harris says her well-intentioned goal is to close the wealth gap between black and while families. She would give 4 million homebuyers HUD grants of up to $25,000 each to help them make down payments and pay closing costs to buy homes.
However, as we all know, the average cost of even a modest home far exceeds $25,000. That means that recipients of these generous government grants would need to borrow a lot more money to buy homes, even while facing big monthly mortgage payments that in many cases would be greater than they could afford.
Does this sound familiar? If you’ve followed news about the housing market for years, it should. It reminds us of the feel-good government intervention that precipitated the horrendous real estate crash of 2008 and the greatest recession since the Great Depression.
For those of you not immersed in housing finance – meaning most of you – here’s what happened:
A law called the Community Reinvestment Act was first implemented in the administration of President Jimmy Carter in the 1970s. The program created under the law was put on steroids by President Bill Clinton and then-HUD Secretary Andrew Cuomo, who is now the Democratic governor of New York.
At the peak of the foreclosure crisis in 2010, nearly 2.9 million families lost their homes to foreclosure – a tragic consequence of unwise lending practices.
According to the Federal Deposit Insurance Corp.: “The Community Reinvestment Act (CRA) is a law intended to encourage depository institutions to help meet the credit needs of the communities in which they operate, including low- and moderate-income (LMI) neighborhoods.”
In 2009, Business Insider contributor John Carney concluded that the CRA prompted lenders to lower their standards for the ability of borrowers to repay loans, in an effort to increase homeownership.
Though well-meaning, the increased lending to people unable to pay back their loans led to the crash of the housing market and forced many families out of their home due to foreclosure. At the peak of the foreclosure crisis in 2010, nearly 2.9 million families lost their homes to foreclosure – a tragic consequence of unwise lending practices.
These families would have been far better off if they had not purchased homes they were unable to afford – and then lost.
“The evidence is overwhelming that the CRA played a significant role in creating lax lending standards that fueled the housing bubble,” Carney said.
According to Carney, do-good elected officials wanted to see a vast increase in amounts of lending to minority communities, regardless of the financial fundamentals. This sounds eerily familiar to Harris’ goals.
Under the Clinton administration, lenders faced devastating fines if they did not meet the goals set by federal regulators to increase loans to drive up the homeownership rate. Consequently, loans that would never have been written in the past – due to potential risk – were approved for fear of government repercussions.
Republicans were to blame as well. President George W. Bush, in lowering the lending standards even further, said in 2002: “We certainly don’t want there to be a fine print preventing people from owning their home …. We can change the print.”
This was all being done while it was known that “loans located in low income areas are almost twice as likely to be in foreclosure as other loans,” Carney said.
In a 2011 article for The Atlantic, Peter Wallison, a member of the Financial Crisis Inquiry Commission, explained how the liberal policies espoused in the 1990s by then-Rep. Barney Frank, D-Mass. – and now by Harris – could lead to disaster by requiring risky loans to be purchased by government-sponsored financing institutions Fannie Mae and Freddie Mac.
You would think that Sen. Harris – or anyone else wanting to become president – would not have forgotten this all so quickly. As the old saying goes, if we forget the mistakes of the past, we are doomed to repeat them.
Harris’ goal of expanding black homeownership is laudable, but it shouldn’t be accomplished by waiving down payments or lowering credit standards.
Let’s focus instead on the components of her plan that penalize lending discrimination against low-income areas and encourage counseling to help homebuyers understand what they can afford.
And let’s face facts: much as we would wish otherwise, government does not have an infinite supply of money – and every dollar it spends and borrows ultimately has to come from the taxes we pay. And no, there are not enough rich people to pay for everything without taxes for the rest of us being increased as well.
How do you help people with low incomes – regardless of race – become part of the middle class and purchase homes? Government can work to cut the unemployment rate, raise wages and create jobs – just as President Trump has successfully done. But Uncle Sam would go broke giving blank checks to every worthy cause, while our taxes would skyrocket beyond our ability to pay them.