Archive for August, 2010
Treasury Secretary Timothy Geithner, kicking off a half-day conference on housing finance, said Tuesday that it was important for the federal government to continue guaranteeing mortgage loans.
He said continued government support was important “to make sure that Americans can borrow at reasonable interest rates to buy a house even in a downturn.”
The direct influence of the California homebuilding industry contributed $13.8bn to the state economy and supported nearly 77,000 jobs in 2009, according to a new study (download here) commissioned by the California Homebuilding Foundation and conducted by the Center for Strategic Economic Research, institutions both based in the California capitol of Sacramento.
Government-backed mortgage bonds are underperforming Treasuries by the most this year, after reaching record high prices, amid concern refinancing will accelerate.
Fannie Mae, Freddie Mac and Ginnie Mae securities have returned 24 basis points, or 0.24 percentage point, less than US debt this month, the worst relative results since December, Barclays Capital indexes show.
The house on the 53rd block of South Wood Street in Chicago's Back of the Yards doesn't look like a $355,000 home. There is no front door and most of the windows are boarded up.
Public records show it sold in foreclosure for $25,500 in January 2009, then resold for $355,000 in October. In between, a $110,000 mortgage was taken out on the home, supposedly for renovations. This June, the property went back into foreclosure.
Overall, Alvarez & Marshall, the restructuring specialists, have charged $326m in fees for "interim management", according to recent figures filed with the Securities & Exchange Commission for 22 months' work.
Lehman Brothers' lead bankruptcy law firm, Weil Gotshal & Manges, have charged $212.3m, while Milbank Tweed Hadley & McCloy have been paid $61.1m for advising the bank's credit committee.
A federal judge refused to approve the Securities and Exchange Commission's $75m settlement with Citigroup Inc. over the bank's disclosure of subprime-mortgage problems, saying she is "baffled" by the proposed pact.
The US does not intend to wind down completely Fannie Mae and Freddie Mac, the large government-sponsored mortgage companies that are eating up billions of taxpayer dollars, given the fragile state of the housing market.
Administration officials say that any credible proposal to overhaul the government-sponsored enterprises (GSEs), as Fannie and Freddie are called, would need to include a “thoughtful approach” to prevent house prices from dipping lower.
Running a government must be like walking a tightrope, always balancing the need to dominate with the need to make constituents feel like they have the power. Fail at the first and you'll never have the power to get anything done. Fail at the second and you'll be out of power before you can get anything done. Either way, you fall off the rope.
We like to think of our political appointees (and they're all appointed, just some through general elections) as leaders. But really, they're more like directors. Instead of leading us down a path, they tell us what paths we can go down and which ones we can't. They make rules and we abide by them. Good governments are made up of politicians who basically follow the same rules as they make for their constituents. Whether they play by the same rules or not, people in government make the rules.
Knowing this, I'm always suspicious when I see government acting like they want to include the rest of us in the rulemaking process.
For instance, last week, the FDIC announced its new “Open Door” policy for regulatory reform rulemaking, something the agency says will make it easier for the public to give input and track the rulemaking process as the agency implements the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Well, that's just great. We couldn't get politicians on Capitol Hill to listen to the industry because they were busy trying to add pages to the 2,000-page bill before the book slammed shut and got shipped to the White House for the president's stamp. Now that we have the book on the future of the industry, the FDIC wants to let anyone with an idea come in and tell them how to implement the rules?
It's been a criticism of our government in the past that legislators will pass laws without regard to details like funding, agency oversight or enforcement. Perhaps our elected officials don't think they were hired or are being compensated for such things. On the other hand, it probably made good sense at one point to put the actual implementation of a new law into the hands of agency workers who, presumably, knew something about the industry they were regulating. I'm not sure that's as valid today as it was in the past, but our agencies are staffed up and firing a government employee is harder than declaring war in the Middle East, unless you have YouTube support. But I digress…
The FDIC says the new policy with allow the public to have a larger role in the process than ever before, “especially being able to participate even before regulatory reform rules are drafted and proposed.” This does go well beyond the comment period we've been offered in the past, but is the agency really willing to read and consider every rule an attorney dreams up and sends in?
And what about that common man this administration has been bent on attracting since the president launched his first Facebook page? Does the agency really expect Joe Public to send in a rule that will make sense for the implementation of a law like “FrankenDodd,” to steal blatantly from Ann Fulmer?
FDIC Chairman Sheila C. Bair calls this a move toward greater transparency. “I think transparency is a significant issue for each step along the way. We owe it to the public to have an open door policy so that people can see for themselves how financial services reform is going to be implemented."
So, it's possible that when the FDIC says Open Door, what they really mean is something more akin to the big doors on the front of the Smithsonian or Teddy Roosevelt's home on Long Island. The public is welcomed in and can look around. The press release makes it sound like we can just make up some rules and put them in a stamped envelope and help with the financial reformation.
On the surface, a thinking man would have to say this is crazy. But this is the administration that launched regulations.gov and then sponsored a video contest on YouTube to see what citizen could provide the most clever video to explain the site's purpose. The site appears to be something of an Open Door for about 300 government agencies (yes, we have that many).
The United States is a republic, but we act like a democracy whenever we can. In general, I applaud any effort to make our system more open to the people it is supposed to govern. But this self-serve rulemaking seems doomed from the get go. I give the FDIC's Open Door six months before I expect to see it slam shut.
In the meantime, I would love to be copied on any new rules anyone sends the agency's way.
Rick Grant is veteran journalist covering mortgage technology and the financial industry.
Follow him on Twitter: @NYRickGrant
