In a recent article by Investor’s Daily they state “CFPB recently released new mortgage rules that, despite claims of tightening standards, require no minimum credit scores or down payments, and even allow checks from "government assistance programs" as qualifying income.” Among the change in rules the CFPB are also increasing their monitoring of possible discrimination by lenders on denying borrowers under “qualified mortgages”. By doing this it seems that the CFPB and President Obama are putting pressure on lenders to qualify borrowers for mortgage loans when they really should not be qualified. This seems similar to before the housing fall when there was a push to increase home ownership.
One of the subjects that attributed to the economic crisis of 2008 was the sub-prime market, which was originally implemented to increase home ownership. Sub-prime lending helped low-income families get approved for mortgage loans by lowering requirements. As discussed in Real Estate Analysis Environments and Activities, the problem with sub-prime lending was that when the economy began to fall sub-prime borrowers were unable to pay their mortgage. By pushing for sub-prime lending the President is increasing the risk factor associated with qualifying borrowers. With an increase of barely qualified borrowers it is sure to affect the markets on a local level.
According to the supply and demand cycle of real estate increased demand can lead to a temporary increase in prices until supply is added to the market. This seems to have a positive effect on the housing market since it would increase the flow of the local market. However if the economy was to decline in the future it can be detrimental to sub-prime borrowers, as seen in the past. The fact is that sub-prime lenders barely qualify, and if the economy were to go bad then sub-prime lenders would be among the first borrowers to default on their homes because they have no financial cushion.
To conclude sub-prime lending was not the only reason why the economy greatly declined a few years ago, but it was one of the contributing factors. The United States is still recovering from the Great Recession and the encouragement of sub-prime lending may not be the best idea right now.