BLOG VIEW: Last month, Secretary of the U.S. Department of Housing and Urban Development Secretary Shaun Donovan gave a speech in Raleigh, N.C., where he candidly admitted something that the Obama administration has refused to acknowledge since it came into office.
‘Nowhere did we stray further from those values over the past decade than the housing bubble,’ Donovan said. ‘The irresponsible actions of some hurt millions of families. They were hurt by lenders who sold loans to people who couldn't afford them, by buyers who knew they couldn't afford them, and by banks that packaged and traded those mortgages to make profits that were nothing more than a mirage.’
Did you catch the rare admission that slipped from Donovan's lips? Yes, I know that he repeated the administration's propaganda about lenders taking advantage of borrowers (it must have been very difficult for consumers to sign all of those loan documents with lenders' guns pointed at their heads) and the alleged evils of securitization (of course, it is not evil when the fruits of those labors are contributed to the Obama re-election campaign).
But something else got into the mix: a very rare rebuke of borrowers. Yes, Donovan actually said, ‘â�¦buyers who knew they couldn't afford them.’
Whoa, did he really say that? Did Donovan – whether intentionally or accidentally – break the long-standing taboo and openly admit that reckless borrowers actually played a role in the collapse of the housing market?
That's not the way the administration has written recent history. Back in February 2011, Elizabeth Warren used her hazy role as presidential advisor to offer a very different spin on how the housing bubble got out of control.
‘The crisis revealed how the financial system permitted lenders to hide the true costs and risks of mortgages and to steer those who trusted them into products they did not understand,’ Warren wrote on a blog published on the Consumer Financial Protection Bureau's website. ‘The system â�¦ permitted some borrowers to take risks that not only hurt themselves, but also hurt their neighbors by driving the value of property higher and then pushing it off a cliff when those borrowers defaulted on their loans.’
In Warren's fantasy, the financial services industry was the evil witch with a preheated oven, and borrowers were the dimwitted Hansel and Gretel who were lethally distracted by the glistening gingerbread houses on the multiple listing services. The problem, according to Warren, was not that people were reckless with their borrowing – it was the cruel ‘system’ that took advantage of them.
In Donovan's world, however, borrowers were responsible for their own actions. Yes, he correctly pointed out that lenders should not have entered into transactions with many people that were well below the safety levels of creditworthiness. But at the same time, Donovan does not create silly excuses of private-sector trickery or ‘devil made me do it’ scenarios that make borrowers into perennial victims and lenders into perennial villains. Instead, he offers – albeit briefly – the reality that too many people made very bad financial choices, thus contributing to the economic collapse of 2008.
Ah, but who is going to pay for the poor judgment of borrowers who ran themselves into debt? If you need a clue to answer that question, try looking in the mirror. But if you don't like that answer, misery loves company – you and the rest of the taxpaying population have been keeping the U.S. housing finance system on its feet for the past few years, with no return on investment for the effort.
And you should expect to keep paying into the foreseeable future. Two weeks ago, the White House quietly announced the Home Affordable Modification Program is being tinkered with again to help funnel taxpayer money to the investors and speculators that helped fuel the housing bubble. Yes, this is the new federal modus operandi: responsible taxpayers having their pockets emptied in order to bail out their utterly irresponsible neighbors. And if there are no funds in the federal piggy bank to cover these expenses, no sweat – Uncle Ben and his magical money-printing machine will be called upon to churn out more cash to keep the party hopping.
Still, at least we can grateful that Donovan was honest enough to admit that borrowers bear some responsibility for the 2008 economic collapse. It is nice to know that someone in Washington knows how to tell the truth in an election year.
– Phil Hall, editor, MortgageOrb
(Please address all comments regarding this opinion column to hallp@mortgageorb.com.)
