But Stevens sees no reason the agency should raise its down payment requirement to 5 percent. "All that's going to do is retard recovery," he says, by making it harder for people to buy homes.
But guess what? It should be harder for people to buy homes. Making it too easy to buy homes is what caused the foreclosure epidemic, which led to the financial crisis, which helped crater the economy.
Right now, the real estate market is adjusting to the new environment, where Americans are not willing to pay as much because they perceive that when you buy a house, you cannot be certain of making money on the investment and, in fact, may lose your shirt. The FHA's easy-money policy is supposed to prevent that adjustment, and push up prices, by assuring that people who cannot afford the risks of home ownership will be able to buy.
If many of the loans turn into pumpkins, that's OK. House Financial Services Committee Chairman Barney Frank, D-Mass., actually told The New York Times, "I don't think it's a bad thing that the bad loans occurred. It was an effort to keep prices from falling too fast." In other words, soaring defaults are not a bug. They're a feature.
But as Willen points out, prices didn't rise during the boom because there was reckless lending. There was reckless lending because everyone thought prices would rise. But the FHA imagines that it can cure the problems created by easy credit by promoting more easy credit.
Is it fair to call that approach shortsighted? Imprudent? Economically fallacious? Sure. But mainly, it's just plain crazy.