Posts Tagged ‘Business Week’
If my article on loan modifications for The Big Money left you wanting more, Business Week has done a detailed, revealing and readable (considering the subject matter) look at what it will really take to modify mortgages to make them affordable. Between preemptive lawsuits from major investors and accounting standards designed to prevent monkey business in the management of mortgage pools, the technical obstacles to even the not-especially-helpful kinds of loan mods we’ve seen so far remain depressingly formidable.
On the bright side, those challenges may ultimately (this is my opinion now, not Business Week’s) doom the trend of tinkering with bad mortgages to nudge them to perform and leave across-the-board writedowns, through a formidable exercise of government power, as a necessary action if things get much worse. And given all current foreclosure and related economic trends it’s hard to see how they won’t.
Wow. I’m not sure which act was weirder — President Bush giving a pardon to a Long Island developer convicted of fraud under the Federal Housing Administration mortgage insurance program or his subsequent reversal of that pardon, which I learned of while writing this.
Better to look ahead, and I worry. Business Week had a great cover story earlier this month about the perils of HUD’s aggressive expansion of FHA as a source of mortgages as the private sector pulls back on lending. As of the new year, the agency will insure loans that in some parts of the country will near $700,000. Again and again in its history, FHA mortgages, sold by independent brokers, have been fodder for fraud, including many of the practices — flipping, rigged appraisals, and the rest — that later became synonymous with subprime lending. Usually, the companies selling the mortgages have been central players in the schemes. See City Limits‘ series on FHA fraud in the late 1990s, which I edited.
FHA at its core is a deeply valuable institution. If it’s going to once again serve as the backbone for homeownership as a source of security for middle-class Americans, instead of fodder for a Sopranos plotline (third season), FHA is going to need as big an overhaul as any government agency in the Obama administration. Obama’s nominee for HUD Secretary, Shaun Donovan, is as capable as anyone of fixing FHA. The bad news is that some very talented people tried to set it straight under President Clinton, only to be thwarted by the Contract With America crowd. Housing and health care are now in the same boat — Obama’s people are going to have to win the fights that Clinton’s lost.