Posts Tagged ‘Barney Frank’

Prop Up Those Prices

I said it in my book, and as Calculated Risk points out today it’s becoming more and more true with each passing week: If there’s one consistent federal policy for the housing market, it’s to prop up prices at any cost. The new homebuyer tax credit, generous FHA underwriting, the awfully high loan sizes accepted by Fannie and Freddie, the Fed’s mortgage securities purchase program, iffy loan modifications – these are all crutches that most likely forestall an inevitable reckoning. Letting the air out slowly is one thing, but this is more like holding one’s breath on the theory that the oxygen will last.

CR shares a rather alarming – one could charitably call it sloppy – quote from Barney Frank about the tons of shaky FHA loans made over the last couple of years and now threatening the insurance fund:

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. That’s a policy.

It’s policy like hair-of-the-dog is policy. Not good.

Monday, October 12th, 2009 | Tags: , ,
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Vanilla fudge

There’s much lamentation in the econoblogosphere about the demise of the “plain vanilla” mandate, which was part of the Consumer Financial Protection Agency legislation and deeply despised by banks. Last week Barney Frank let it drop, and Felix Salmon, Mike Konczal, and many others have responded with eulogies for consumer reform itself.

Losing the plain vanilla mandate sucks deeply, but the really important battle regardless is what will happen to the secondary market. Fannie and Freddie and their regulators made plain vanilla the standard for decades – CRA activists in the 1980s actually used “plain vanilla” as an epithet, describing how the GSEs’ strict underwriting standards for this mortgages excluded minority/urban borrowers. It was only with the entry of essentially unregulated secondary market actors following 1980s deregulation that subprime and other gotcha mortgages came on the scene.

Good secondary market regulation can reward lenders for doing plain vanilla and make it discouragingly expensive for them to venture into exotica. That was essentially the case during the 1990s, as investment banks entering the mortgage-backed securities market struggled to make a dent in Fannie Mae and Freddie Mac’s market share because of the GSEs’ advantages of implied government backing and monopoly on plain vanilla. Predatory lending was a problem then, of course, but it was not yet a mainstream market and thus could have been contained had regulators (Greenspan!) chosen to act.

There’s still ample opportunity for the feds to push plain vanilla, if they choose to seize it. Bankers don’t necessarily mind, either – after all, they did very well for themselves selling plain vanilla backed by the GSEs. The Mortgage Bankers’ Association’s proposal for GSE reform contemplates explicit government guarantees on mortgage pools that meet regulators’ specified standards. With the right standards and incentives, a mechanism like that can promote plain vanilla as once again a dominant market presence. Think of it as the “public option” for mortgage credit, and perhaps other forms of credit too.

Sunday, September 27th, 2009 | Tags: , , , , ,
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Why reform died

In The Washington Independent, the consistently excellent Mary Kane has a sharp piece explaining why efforts in Congress to directly prohibit many predatory lending practices have been a non-starter. Expect the new Obama administration financial industry regulation plan and its promise of a Consumer Financial Protection Agency to doom whatever chances such legislation had. As I noted earlier this week, nothing  – no, not even a 5 percent stake in a loan’s performance – will stop financial institutions from continuing to create harmful mortgages.

Wednesday, June 17th, 2009 | Tags: , , ,
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All too predictable

A couple of years ago, when Reps. Barney Frank and Maxine Waters were pleading for a huge increase in the size of loans that could be insured through the Federal Housing Administration, my first thought was: Are they nuts? But that was the thinking at the time — with the price of real estate spiking, they thought (or at least Waters did, judging from her statements on the House floor) that bulking up the size of permissible morgtages was doing a favor to their constituents, who after all lived in very expensive cities, real estate-wise.

Well, FHA is now shaping up to be a pricey disaster, thanks to even more idiotic policy decisions that were supposed to help FHA compete with subprime. The Washington Post has an alarming story today about a surge in FHA loans that have recently gone into foreclosure without a single payment, a sure sign of fraud. HUD in the last couple of years has permitted FHA lenders to do direct marketing of loans (junk mail/telemarketing), insta-refinances for existing customers, and (ohmigod) cash out mortgages. Government-insured cash-out mortgages!! HUD might as well have been asking lenders to set up bogus deals. And this time around, the government is automatically on the hook for any losses the insurance fund can’t cover.

Sunday, March 8th, 2009 | Tags: , , , ,
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