From the hype surrounding the newly announced $26 billion settlement over abusive foreclosure and mortgage servicing practices, one might think that it would single-handedly solve the housing crisis and end underwater mortgages. This is not the case. Like the many versions of President Obama’s refinancing plan, this settlement has large numbers in the aggregate but will probably mean only a little relief for a fairly small number of homeowners. This is not a policy initiative. It is the resolution to court cases against mortgage servicers for some seriously abusive practices. …
The misguided federal policy to concentrate the U.S. mortgage finance industry in two huge government-sponsored entities was underscored again this morning when the Securities and Exchange Commission (SEC) charged six former Fannie Mae and Freddie Mac executives with misleading investors and Congress about the amount of poor-credit-quality mortgages each entity held before they were taken over by U.S. regulators in September 2008. The charges, if true, also make it clear that both Fannie and Freddie were acting as hedge funds that gambled on high-risk investments in addition to their congressionally …
Exactly 10 years ago today, the Enron Corporation filed for bankruptcy after it was revealed that it had blatantly falsified its earnings statements for many years. Although most of the accounting irregularities that caused its collapse were already illegal, Congress overreacted and passed Sarbanes–Oxley, a massive and deeply flawed accounting reform law. A decade later, it is time for cooler heads to prevail, and to consider repealing Section 404. This onerous provision is supposed to ensure that the financial reports of publicly traded corporations meet certain standards, but in reality …
Government programs cannot stop the decline in housing prices. The latest evidence of this comes from a study of first-time homebuyers who took advantage of an $8,000 tax credit available between 2009 and September 2010. According to a new study, housing prices in 110 of 157 studied cities have dropped more than the value of the $8,000 tax credit since June 2010. Home prices in six of the 157 cities increased. In short, not only did the $26 billion program fail to stabilize housing prices, but those who took advantage …
Undeterred by the underperformance of several previous efforts at mortgage refinancing, the Obama Administration has announced yet another plan designed to refinance the “underwater” mortgages of homeowners who owe more on their mortgage than their houses are currently worth. However, this version of the Home Affordable Refinance Program (HAMP) has many of the weaknesses of previous versions, and it is unlikely to be any more successful. To matters worse, the cost of the refinanced loans will be borne by Fannie Mae and Freddie Mac, which the government already controls. This …
They are at it again. Despite numerous unsuccessful tries to develop a government-facilitated plan to refinance problem mortgages, another one appears to be on the horizon. This one, currently being considered by state and federal officials and large mortgage lenders, has a better focus than earlier versions, but would at best help only a small minority of those who have been promised assistance in the past. The good news is that it would focus on providing help for those who have continued to pay their mortgages on time, despite the …
Senate Finance Committee Republicans have some good advice for the Joint Select Committee on Deficit Reduction (sometimes known as the super committee): Fix Social Security now. As part of a 21-page comprehensive set of recommendations on issues under Finance Committee jurisdiction, the Republicans note that “Social Security reform, aimed at solvency and integrity of the program, and not for near-term deficit reduction, needs to occur as soon as possible and should not be delayed.” Further, the recommendations note: Reform of the Social Security program to ensure sustainable solvency and protection …
You would think that any regulation that could affect a major part of the economy and cost industry and/or consumers millions of dollars to comply with would be based on rigorous and consistent economic analysis. After all, how else would regulators know the actual effect of their proposals and whether the proposed solution at least equals compliance costs? Unfortunately, this level of economic analysis is not required for most financial regulatory agencies, which have been swamped trying to issue all of the hundreds of rules required by the Dodd–Frank bill. …
While some of the press stories might make one think that Bernie Madoff ran Social Security, the reality is quite different. Although Social Security does bear a resemblance to a Ponzi scheme in that it has promised much more in benefits to younger Americans than it can possibly pay, these shortcomings can be fairly easily fixed if political leaders are willing to face up to the challenge. Ponzi schemes cannot be fixed, since they are criminal enterprises designed to fleece participants. However, rhetorical flourishes aside, the recent Social Security debate …
News reports say that the Federal Housing Finance Agency (FHFA) will sue about 12 major banks in order to recover some of the losses that Fannie Mae and Freddie Mac sustained on mortgage-backed securities the banks issued. The suits will seek to make the banks repay a share of about $30 billion in losses from securities that Fannie Mae and Freddie Mac bought before they essentially failed and the FHFA took them into conservatorship in September 2008. Since any recovered money would reduce the over $150 billion the taxpayers have …
