Bill’s Place

Obama Faces Pressure From Left on Housing Regulator  

 Wall Street Journal - Developments February 7, 2013

By Alan Zibel

Rep. Elijah Cummings (D., Md.) is among lawmakers calling on

President Obama to nominate a permanent director for the FHFA.

When will the White House finally have something to say about President Barack Obama’s pick to run the FHFA?

That question is on the mind of 45 House Democrats. The lawmakers, led by Reps. Elijah Cummings (D., Md.) and John Tierney (D., Mass.), sent a letter on Thursday to President Barack Obama urging him to nominate a director of the Federal Housing Finance Agency–-the federal regulator for Fannie Mae and Freddie Mac.

“We believe your re-election is a prime opportunity to put forth a new candidate who is ready and willing to implement all of Congress’ directives to meet the critical challenges still facing our nation’s housing-finance markets,” the lawmakers wrote.

The agency’s acting director, Edward DeMarco, has been criticized by Democrats on Capitol Hill, administration officials and liberal groups, all of whom have been calling on Mr. Obama to replace Mr. DeMarco.

Representatives for the White House and Mr. DeMarco were not immediately available for comment.

Why all the fuss about a seemingly obscure regulator? The most prominent area of conflict has been the FHFA’s refusal to accept the Obama administration’s offer to subsidize the cost of debt forgiveness for troubled homeowners.

Obama administration officials argued that Fannie and Freddie could actually save money by doing so but Mr. DeMarco said no, arguing that any potential savings would not be large enough to overcome other costs.

As Developments reported in December, the White House has been exploring potential leaders for the agency.

But the matter does not appear to be especially urgent for the administration as it focuses on confirming leaders for cabinet-level agencies such as the Treasury Department.

Another issue is that it may be difficult to find a FHFA nominee who could clear the Senate, where Republicans are likely to be skeptical of any choice: The administration’s first choice to run the FHFA, former North Carolina banking regulator Joseph Smith, withdrew his name more than two years ago in the face of intense Republican opposition.

Many on the left would like Mr. Obama to use a recess appointment to install Mr. DeMarco’s replacement. But that outcome is now highly unlikely, now after a federal court ruled that Mr. Obama’s use of that method to install three members of a federal labor panel was unconstitutional.

---

An historical observation relating to this pressure from the left on federal housing policy:

 

In November of 2011, at a business roundtable in Mid-town Manhattan a member of the press asked NYC Mayor Michael Bloomberg for his thoughts on the Occupy Wall Street Movement (OWS).

He said, “They are blaming the wrong people. Plain and simple, Congress caused the mortgage crisis, not Wall Street”.

Watch as Mayor Bloomberg makes his, Blame Congress Declaration

When home prices begin to fall, a natural level of weak support may develop around a loan-to-value ratio of one. That is, when equity in a home approaches zero, the homeowner ought to become reluctant to sell. History suggests any such strategy should prove foolhardy. Trends in housing tend to be long and headstrong, and hence not easily resisted…The development of significantly negative home equity among the same homeowners that also comprise the world’s most voracious consumers would likely trigger several economic problems…banks would become reluctant to lend to home buyers. The effect would be to contract the credit available to would-be homeowners and therefore severely undercut the main late-cycle driver of demand…These problems would compound the worsening domestic employment situation, further reducing demand for residential housing and thereby producing the requisite positive feedback loop that historically has allowed burgeoning asset deflation to accelerate. As the real estate deflation wears on, it would not be unreasonable to expect that unemployment-induced income shocks mix in toxic fashion with the comparatively high mobility tolerance of the United States citizenry, motivating homeowners to start sending their keys to the bank in ever-increasing numbers. Many banks taking possession of increasing amounts of real estate will ultimately fail themselves. A catharsis could then take shape, and home prices would leg down yet again. After much pain both despair and disgust will settle in, and a bottom would begin to form.

-Scion 2Q 2003 Letter to Investors

Ms. Morgenson:

Regarding MERS, a few months ago I read that MERS was actually conceived by Fannie Mae and the concept was described in a presentation given at a Mortgage Bankers Association convention in 1993 or 1994. The article claimed Fannie got positive feedback on the MERS concept from the mortgage bankers. The article claimed that Fannie Mae and Freddie Mac then funded the development of MERS with contributions of 2 million dollars each. After MERS was 'brought live' Fannie and Freddie invited large mortgage industry members to join MERS on a subscription basis.

I've searched again for the article(s) recently, but I haven't been able to find the articles that described the actual creation of MERS. Perhaps the articles have been "scrubbed".

What I read seems to confirm the leadership role that Fannie and Freddie had, and the ways these two GSE's influenced and led the industry, and how they shaped practices in the industry. You might find the two articles referenced below interesting:

Is FM Watch a Crusader With an Agenda? By Louis Sichelman – RealtyTimes, pub. 7/5/1999 at: http://realtytimes.com/rtpages/19990705_fmwatch.htm

New Alliance Confronts FM Watch, Champions Existing Housing Finance System By Broderick Perkins RealtyTimes, pub. 10/5/2000>  http://realtytimes.com/rtpages/20001005_fmwatch.htm

 Many politicians, some federal regulators, and many vocal media commentators claim that the Community Reinvestment Act (CRA) and its regulatory evolution had nothing to do with the creation of the U.S. housing and mortgage bubble. It seems that, at some point in the near future, an objective review of the facts may require a revision of the claim that the CRA was not a significant factor in the creation of the U.S. housing and mortgage bubble.¹

The Community Reinvestment Act: Its Evolution and New Challenges*

A speech by Chairman of the U.S. Federal Reserve, Ben S. Bernanke 

At the Community Affairs Research Conference, Washington, D.C.

March 30, 2007

From the third paragraph below the heading: The Evolution of The CRA

Even as these developments were occurring, extensive change was taking place in the financial services sector. During the 1980s and 1990s, technological progress significantly improved data collection and information processing, which led to the development and widespread use of credit-scoring models and the availability of generic credit history scores. Deregulation also contributed to the changes in the marketplace. Notably, the lifting of prohibitions against interstate banking was followed by an increased pace of industry consolidation. Also, the preemption of usury laws on home loans created more scope for risk-based pricing of mortgages. Securitization of affordable housing loans expanded, as did the secondary market for those loans, in part reflecting a 1992 law that required the government-sponsored enterprises, Fannie Mae and Freddie Mac, to devote a percentage of their activities to meeting affordable housing goals (HUD, 2006). A generally strong economy and lower interest rates also helped improved access to credit by lower-income households.