We’ve had hearings, and proposals and talk about ending the abuses of subprime lending.  At the end of the day though, whatever has been done has just been talk.  Toxic loans continue to be made every day.  This time around however it’s not the "greedy lenders" and "greedy mortgage brokers" seeking obscene profits that are driving the market- now it’s the government making the loans to try and perpetuate the illusion of a stabilizing mortgage market.

So you thought easy-money mortgages with little or no down paymentfor people with bad credit was a thing of the past? Think again.

You can get just such a loan today – and it’s guaranteed by the federal government.

Loans insured by the Federal Housing Administration (FHA) have become the new subprime, and these loans are exposing taxpayers to the same kinds of soaring default rates and losses that brought down Fannie Mae and Freddie Mac as well as destroyed many banks and the private market for mortgage loans.

While private lenders learned a lesson from the mortgage crisis and are shying away from easy-money loans, the FHA has stepped into the breach. The agency has provided backing for 37 percent of all mortgages used to buy homes this year.

Here’s one disturbing example of one of those "new subprime" loans:

Denise Tejada bought a house last month at the age of 20, thanks in large part to a loan guaranteed by the Federal Housing Authority.

This story offers a dramatic demonstration that, despite the housing bubble causing the worst economic downturn in generations, the ideology of home ownership is alive and well in the United States and still being supported by the government.

Without question, Tejada’s loan is toxic–to her and to the taxpayers who are backing the loan. Her house cost $155,000. Tejada’s loan was apparently made on a micro-down payment of just 3.5%, the minimum down payment to qualify for an FHA loan. On top of this, however, she got an additional government backed loan to make improvements. Her total loans amount to $183,0000. In short, she was immediately underwater on her new house.

The monthly payments on her debt amount to $1328. Her income is $2470, leaving her with just $285 a week to live on. She’s paying 54% of her income to make the mortgage payments. She earns that income by holding down one full time and two part time jobs. Obviously, this woman has a strong work ethic. But it also means her income is precarious. With unemployment still rising, she obviously should be worried about losing one of her three jobs.  A loss of one of them would likely leave her unable to make the debt payments.

In 2007 Representative Barney Frank wrote a letter to Congress discussing the evils of subprime lending and laying out what he felt were important principles that legislation should address.  Here’s one of those principles:

Lenders should not make loans that they know the consumer cannot pay back or that exceed the value of the home. This seems simple – why would lenders ever make such loans? Unfortunately a number have, and consumers and communities bear the results. We will implement standards that help ensure lender and consumer interests are aligned, and that result in good loans and financially healthy borrowers.

Apparently we don’t want private industry taking advantage of borrowers- we have a government that can do it better.