The Obama administration recently began an effort to encourage banks to grant home loans to people with weaker credit. While some officials and economists are advocating such policy, others claim it will lead to the type of risky lending that resulted in the 2008 subprime mortgage crisis.
The circumstances now are different, however, in the midst of a housing rebound and low interest rates. Banks remaining too frugal and too stringent about advancing loans are rendering too many people left behind - unable to purchase homes.
While we support widening the availability of loans, we also believe there should be a certain level of government oversight that regulates these procedures.
The administration is not justifying the type of lending that led to the housing collapse, in which loans were being issued to people who had lacked the means to pay them back. The administration wants a wider range of borrowers who can utilize a government program that is taxpayer backed and insures against default.
This will not lead to the excessive amount of foreclosures that began to surface in 2008. What this does, however, is provide for people in need of lending who have jobs and a credit rating that demonstrates a capacity to pay back the loans in time; it expands the availability of loans to many, especially those whose credit scores have gone down due to the recession.
After the housing collapse, the qualifications to receive home loans became exceedingly difficult. Obama wants lenders to have the room to make subjective judgment in order to determine whether someone can receive a loan. People shouldn't have to suffer because of the mistakes of the past.
Simply stated, there needs to be more lending, but it should remain safe lending. People should only receive loans if they have the financial wherewithal to pay.
This can affect a lot of young people of college age - people who are young and starting a family and whom it would be beneficial to own a home. This also helps young people who intend to move out of their parents' homes by buying as opposed to renting.
There is also a responsibility to those of low- and moderate-income level communities to receive some support, if they can demonstrate the ability to get work and earn an income.
In the period between 2007 and 2012, new-home purchases declined 90 percent for people who held credit scores between 620 and 680 - which historically have been reputable enough credit scores. These figures reflect how paralyzing the current loan qualifications have been.
Instituting policy that provides more freedom to lenders will have exponential effects on the economy as well. More housing activity results in more purchases and construction, which also means more jobs.
There are a multitude of studies that show housing's role in a family's potentiality of accumulating more wealth, according to The Washington Post. The more stability, the greater the capacity one has to maintain work and achieve a higher credit rating.
If the economy begins picking up, more household formations will occur and we can begin seeing more steps toward increased growth. While some say the decision of what borrowers should get loans should be a process to come out of the private market, the government has been managing the housing market mostly, anyway, and its aim should be to make homeownership a feasible possibility and more affordable.
While the risks involved in widening the availability of loans is discernible, there are many of cases of creditworthy borrowers who deserve the opportunity for lending and are being deprived. The Obama administration is making the right move in trying to make lending accessible to a larger amount of people.
A market economy works best when its government enables its people to succeed in it.
Email: editorial@ubspectrum.com
