Kerry should leave lending standards alone

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Our compassionate Sen. John Kerry is at it again, in behalf of the demographic he professes to understand so well – the middle class.

The multi-millionaire Massachusetts senator is complaining that the federal lending rules created to prevent another mortgage meltdown will prevent middle-class, credit-worthy borrowers from buying a home.

What he dislikes in particular is a proposed regulation that would require some homebuyers to make a down payment of 20 percent to qualify for a low-interest loan.

In a letter to Shaun Donovan, secretary of the US Department of Housing and Urban Development; Federal Reserve chairman Ben S. Bernanke; and Sheila C. Bair, head of the Federal Deposit Insurance Corp., Kerry wrote, “None of us — and none of you — want (sic) to see reform create an onerous unintended consequence: keeping middle-class families trapped in a cycle of paying rent when, in fact, they could well be paying mortgages.”

He later added, “The notion of a police officer or teacher or firefighter being forced to spend years trying to save the upfront money required for a 20 percent down payment is a daunting prospect.”

Yes, buying a home is a serious investment, and people used to expect to have to save for years to afford it. They didn’t think of it as daunting, they thought of it as reality. Kerry has a very short memory – one of the major reasons for the economic collapse was the instant-gratification philosophy – nobody should have to wait to buy a home.

He is out of touch on several other levels as well. First, these regulations are coming not from heartless Republicans, but a Democratic administration with bipartisan legislative support. The proposed 20-percent down requirement would not apply to everybody – just those getting a financial break, in the form of a low-interest loan. And the reason is a good one – to make sure that both the lender and the borrower have some significant skin in the game.

Second, while Kerry talks about unintended consequences, his recommendation could create them as well. If the market is allowed to function without the kind of interference Kerry proposes, housing prices will drop to more affordable levels, and people will start to buy. If lending and underwriting standards are relaxed, prices will shoot right back up to artificially high levels.

Finally, Kerry’s disconnect from the real middle class would be funny if he wasn’t a high-level government official.

Perhaps teachers fit that category, but cops and firefighters who have been on the job more than five years are very much upper-middle. Check the income of municipal workers in your community. Public safety workers are always at the top, many of them well into six figures. If they are disciplined at all with their money, they can save enough to put 20 percent down on a reasonable house sooner than most of their private-sector peers.

They are among those least affected by the recession, and they don’t need extra help from their senator.

Yes, cutting the 20-percent down requirement to 15 or even 10 percent is not going to lead immediately to another meltdown. But it is a step in the wrong direction. And that’s how we got in trouble before – one small step at a time.