1. Not everyone should own a home.

Many will find this statement appalling. After all, isn’t home ownership the American Dream? The problem is that the federal government encouraged home ownership and encouraged relaxed lending standards, which allowed unqualified buyers to receive mortgages. Many of these loans had adjustable rates, didn’t require documentation, or required no money down. Is it any wonder that banks were overwhelmed with bad loans?

This leaves us with another problem: Escalating prices. Once you make it easy for borrowers to get money, you increase the supply of buyers. If the housing inventory doesn’t keep up, prices will rise. As a result, you having rising home prices being brought about by a federal government which haphazardly encourage banks to lend, and banks foolish enough to go along with the feds. Of course, this isn’t the only problem.

2. Force banks to take responsibilty for their loans.

I’m not a fan of over-regulation, but one simple rule could have prevented most of the problems we are encountering in the housing sector: Force banks to keep loans they originate on their books for at least 5 years.

As you may know, many banks would originate loans, collect the fees, then sell them shortly after. Why would the banks care if the borrower was on shaky financial ground? All they had to do was keep churning out loans like a mortgage factory, and their profits would keep increasing. By forcing banks to keep loans on their books for at least 5 years, you ensure that banks will do their due dilligence and believe the borrower will be able to make payments regularly. Since many foreclosures happen within the first two or three years, this is a good way to ensure that loans aren’t being quickly sold off and securitized.

There’s no doubt that less interference by the government and more responsibility from banks could have averted the current economic crisis. It could have also been averted if borrowers had used some common sense by realizing they couldn’t afford large mortgages and actually understood the terms of their loans. Of course, in today’s America, expecting people to take responsibility for their actions seems unacceptable.

“The White House’s political people like [senior adviser David] Axelrod tell us to lend more,” said one banking official. “But the regulators are saying the exact opposite. They’re saying, ramp up your capital ratios, and if you see default risk on the horizon, cut back on lending.”

The recession has been serious, and it was was caused by a myriad of problems. Some of those problems were related to banks extending credit to people who shouldn’t have received a loan, and irresponsible borrowers who took on too much debt. Let’s also remember that many of these financial institutions were under-capitalized. Now that things are slowly starting to improve, what does the administration want to do? Lend more!

Barack Obama is pushing banks to increase lending so more people will have access to money, which would be used to start or expand businesses, buy homes, or purchase a new car. I agree that this would boost the economy, but do you want to risk building an economy that is built like a house of cards? If banks extend credit to questionable buyers, that’s exactly what they will be doing. A few years ago, it was pretty easy to get a no-doc mortgage with no money down. If you try getting one now, you probably won’t have much luck. That’s a good thing, since smart lending will be good for the banking industry and encourage borrowers to be responsible.

I fear that if banks listen to Barack Obama and drastically increase lending, it could lead to more bad loans, especially at a time when so many people are losing their jobs. This is not the time to have banks take on additional risk.