The recent effort of ProPublica to effectively re-write housing economics through a series of exposés on the government-sponsored enterprises fails to grasp the basic concept of risk.
And, in doing so, effectively shoots the public interest they declare to serve right in the foot.
National Public Radio and ProPublica are doing a great job of continuing to move forward in coverage, with the latest target being pinned on the "obscure" Federal Housing Finance Agency Acting Director Edward DeMarco.
This strategy effectively cuts off the multitudinous questions in regard to earlier coverage. There are so many gaps in the articles so far, it is as if a continual outflow of more questionable coverage will drown out cooler heads and calls for clarity.
NPR and ProPublica are determined to prevail, it's obvious, and tout their articles as if the ideas are unique and the angles are exclusive. None of this is true, of course, and the real tragedy is the only one who suffers through this irresponsible activity, in the end, is the taxpayer.
Falling house prices make for a lose-lose situation. All investors, from bonds holders to backyard mowers, take a hit.
The NPR-ProPublica joint venture on Freddie Mac inverse floaters paraded the struggling Silversteins in front of the nation as a symbol of homeownership gone wrong, though not through any fault of the homeowner. However, it is not ever established if the poor family's mortgage is even wrapped in an inverse floater. If not, as is likely the case, why would any respectable journalist include the anecdote as pertinent information?
From there, the coverage went to politicians calling for an end to the practice of using inverse floaters as a hedge, even though it turns out the practice had already ended. All of the sources used in the coverage provide the perfect sound bite to beg the interest of the coverage flow. The usual suspects of GSE hatred are given a voice, but independent defenders of these mortgage finance practices are treated as nonexistent, offered no room to participate in a dialogue.
Looking over the inverse floater documents, brought to my attention by Christopher Whalen, an investment banker at Tangent Capital Partners and co-founder of Institutional Risk Analytics, the devil is in the details. Freddie Mac instructs the investor that "you will bear all of the market risks of your investment," the documents state.
"The market value of your certificates will vary over time, primarily in response to changes in prevailing interest rates," the documents continue.
So investors are made aware of the risks, are not homeowners? Do they not opt in to a mortgage, using their home as collateral?
Instead, NPR and ProPublica treat these homeowners with kid gloves. They don't get to lose in today's market. Instead, the coverage indicates, the opposite should happen: struggling homeowners should win.
The majority of homeowners are current on their mortgages, and these articles glaze over their exposure to the distressed homeowner risk. By turning the spotlight on evil mortgage finance private-public partnerships, the risk to taxpayers fails to get a mention. Because, in America, the buck stops at the W-2.
In short, in this proposed lose-win scenario, the nation's many will continue to suffer for the nation's few. Because for all the voluminous broadsheet coverage on the disgraceful way in which companies handle the mortgage finance process — running roughshod over the nation's tired and poor — not a single viable solution emerged.
Instead, we must extrapolate it into a mortgage finance collation. And the logical conclusions are not encouraging. If ProPublica really held the public's interest so close to its heart, wouldn't it seek appropriate and fair redress? The first charge would be how to make it right, not a simple chronicle of where it all went wrong.
Any economic good the coverage hopes to accomplish is proving to be merely superfluous and, worse, exhibits a moral hazard jeopardizing the recovery of the housing industry.
It makes a lose-lose situation, incredibly, that much worse.