Forgive them, for they know not what they’re doing

by Armstrong Williams - 01/26/11 2:45 PM ET

Coming out of the dot-com debacle, government
policy tried to improve the economy by spurring spending and production. The Federal
Reserve lowered interest rates, attempting to encourage borrowing and investment
in productive enterprise. The Clinton administration had bolstered the power of
the quasi-governmental lending organizations Fannie Mae and Freddie Mac, charging
them with the task of helping homeownership become more accessible, especially by
targeting low-income families.

The low-income family was the perfect target. They were expected not to read the
disclosers about what an ARM (adjustable rate mortgage) would do, and more importantly,
they were easy to sell on the American dream of homeownership. After all, with interest
rates so low, one could move into a home for the same monthly price as renting an
apartment. It was that easy. The mortgage giants, though privately owned, wore the
glow of federal endorsement, if not an implicit guarantee on their risk-taking activities.

Meanwhile, regulations to ensure fair lending
(anti-redlining) were strengthened and enforced. Public programs designed to help
people with homeownership proliferated. People were taught very good skills initially
— how to save more money for down payments, how to establish and maintain good credit
and how to access government-related mortgage subsidies.

As time went on, however, unscrupulous mortgage lenders began to operate in a different
way — they taught and coached individuals how to game the system. In fact, it became
standard practice by homebuyers to lie on loan documents in order to qualify for
a mortgage. It is standard axiom that the limits of lending are generally set by
the lender, and not the borrower — as the borrower is only too happy to spend now
and think about paying later.

Armstrong Williams is on Sirius/XM Power 169, 7-8 p.m. and 4-5 a.m., Monday through Friday. Become a fan on Facebook at www.facebook.com/arightside, and follow him on Twitter at www.twitter.com/arightside.