Lobbies React to Obama's Mortgage Plan
Now that President Obama has unveiled his long anticipated mortgage relief plan, what does the permanent government of Washington have to say about the plan? The plan got a tentative thumbs up from the American Bankers Association. Diane Casey-Landry, ABA senior executive vice president and chief operating officer said in a statement.
"The American Bankers Association welcomes the Homeowner Affordability and Stability Plan announced today by President Obama. The plan is a constructive, flexible and multifaceted initiative likely to have a positive effect on preventing mortgage foreclosures. The ABA is committed to working closely with the administration as it completes the remaining details of the plan. In particular, the plan is:*A major commitment of funding sufficient in scope to have a significant impact.
*Aimed at those at-risk homeowners most likely to avoid foreclosure under the planned assistance and incentives.
* Designed to include market incentives, and to complement and reinforce industry initiatives and FHA programs."
I've been trying to reach the National Association of Realtors and the National Home Builders Association for their reaction as well.
Not surprisingly, the reaction from Fannie Mae and Freddie Mac has been positive. They stand to get $200 billion in new funds. Besides, they're under government conservatorship and not really in a position to criticize the big guy.
"The Administration's unprecedented effort to prevent foreclosures and expand refinancing options for more borrowers offers hope to many struggling families across America. This is just the beginning of a sustained effort that will build over time. Fannie Mae is committed to working with the Administration," says Herb Allison, Fannie's CEO.
The biggest obstacle that lies ahead is the administration's plan to give bankruptcy court judges the power to rewrite mortgage terms. Not surprisingly, the banks are not crazy about this and will oppose it but the threat of giving judges such power--something opposed by the Bush administration--gives the banks plenty of incentive to rewrite the terms of loans before the judges do. Benjamin Lockwood in The Atlantic argues against these judicial "cram downs" here.
Will update as we hear more but this fight over bankruptcy judges is the one to watch.
Josh
Elana
Matt
Eric
Lockwood's Atlantic post has got to be one of the wimpiest arguments I've ever seen. Cram downs are a bad idea because interest rates would rise to cover the cost of the possible losses in bankruptcies? That's the entirety of the argument? (Plus an obligatory "in these tough economic times, because obviously we should design long-term economic policy entirely based on crisis conditions. Not.)
Tell me, if homes are foreclosed and banks take ownership at current non-bubble prices, isn't that exactly the same principal loss that Lockwood is talking about with bankruptcy? The real answer is that banks are going to take losses in either case unless the taxpayer bails them out, and the argument against cram downs is an argument that banks shouldn't be setting interest rates based on the real risk, because understating the risk will allow more people to get houses. Except that the risk doesn't magically disappear, and the argument that banks are getting more people into houses because they're working on the borrower's behalf is bunk, and the only ones who benefit from this arrangement are the banks.
(Unless, of course, they get bailed out by the taxpayer, which is another round of "privatize the profit, socialize the risk." If that's how it's going to end up, we'd be better off subsidizing the home-buyers directly, and cutting out the middleman.)
February 18, 2009 3:33 PM | Reply | Permalink
Hyprocrisy thy name is "Wall Street", "Banker", "Republican", take your pick.
So a lender make loans on autos, boats, and second and third homes, knowing that the debtor may file Chapter 13 someday and do a cramdown of those secured debts.
It's just that on the mortgage of the primary residence they don't want a cramdown. Hmmmm?
Sounds a little like the banning Medicare from negotiating drug prices, while the Veteran's Administration can and does.
February 18, 2009 6:51 PM | Reply | Permalink