by Henry Meier
The housing debate is finally taking center stage in Washington, but I am afraid that it’s too little, too late.
First, the President gave his most important speech on housing reform Tuesday and signaled broad support for a Senate plan that would scrap Fannie and Freddie and replace them with industry financed insurance to guard against future defaults of mortgage-backed securities. In addition, the President implicitly began to break the news to the American public that housing reform is going to result in fewer people owning houses. I have no doubt that on housing reform, as with many other issues, the Senate and the President could come together on a compromise within weeks, but the way our darned Constitution works, they would also have to get whatever plan they agree to through the House, which agrees that Fannie and Freddie should be eliminated but isn’t as likely to go along with any proposal creating new government backed insurance for the mortgage industry.
The question is where was the President four years ago? His speech was the type of speech that could have forced Congress to at least seriously consider including housing reform in Dodd-Frank. Instead, he went along with conventional wisdom, which was that the country’s economy was too fragile to tinker with housing reform. The result is we still don’t have housing reform and our country is more dependent, not less, on government subsidizing of housing.
Meanwhile, the Justice Department and regulators have woken from their long legal slumber and are starting to actually sue major banks for deceptive advertising. The Wall Street Journal is reporting this morning that J.P. Morgan is under investigation by the Justice Department as is Bank of America, for knowingly making false statements about the quality of mortgage-backed securities it sold at the height of the housing boom. NCUA has made similar arguments so far with limited success but perhaps the higher profile of these impending lawsuits will put more pressure on financial institutions to put these matters behind them. I refuse to believe that government lawyers know more about allegedly shady underwriting practices than they did two or three years ago. My guess is that the government was more fearful of bankrupting major financial institutions than it was of going after them for their misdeeds.continue reading »