“Expecting Mel Watt and the federal government to responsibly manage government finance for Fannie and Freddie housing is the management equivalent of placing the honey badger as the bee-hive supervisor and expecting honey yields to increase…

…However, the political strategy is perfect as Democrats will again blame the next federally caused housing debacle on a GOP Congress and, of course, big banks. The obvious answer is to shift all federal housing lending to the private sector and free market—if the GOP has the guts.”, John Snedden, Palm Springs, Calif.

“The double whammy of higher-risk loans and reduced risk premiums charged for loan guarantees is the same recipe for subprime loan defaults that sent the economy into a tailspin seven years ago. How in the world can we be condensing a multigenerational wave of overleverage mistakes followed by debt deflation into a period of less than 10 years? Washington never was designated the primary culprit in the last mortgage meltdown. Predatory Wall Street bankers bore the brunt of media, public and Washington outrage over imprudent lending to unqualified borrowers. Washington’s insistence that those loans be made was an inconvenient but largely ignored truth… Washington’s hasty return to housing built on financial sand is a “fool me twice, shame on me” washout that will be both nasty and deserved.”, Mark Breen, Greensboro, N.C.

Letters

Have We Learned From Past Mortgage Mistakes or Not?

The practices and products that caused the mortgage crisis are long gone.

Edward Pinto believes that the mortgage lending risk is unacceptably high (“Building Toward Another Mortgage Meltdown,” op-ed, Jan. 29). On the contrary, because of the lessons we have learned, and the restrictions imposed by Dodd-Frank-driven regulations enacted since 2008, mortgage credit availability remains tight today, and mortgage credit quality is quite strong.

However, Mr. Pinto does make an important and valid point: Private companies, not taxpayers, should bear the bulk of the credit risk in the housing market. The most effective way to do that would be for government-sponsored enterprises Fannie Mae and Freddie Mac to allow private companies to assume more risk on the front end of the mortgage transaction in exchange for a lowering of the guarantee fees charged to lenders. This solution effectively “de-risks” the mortgages before they ever reach the GSEs and significantly reduces taxpayer exposure. Upfront risk sharing brings more private capital to bear without resorting to stifling increases in guarantee fees and promotes competition among private lenders, credit enhancers and investors, thus driving down costs for borrowers.

The practices and products that caused the mortgage crisis are long gone. Policy makers should focus on policies and reforms that can build sustainable access to credit for qualified borrowers through market competition, while lessening taxpayer risk exposure.

Mike Fratantoni

Mortgage Bankers Association

Washington

Expecting Mel Watt and the federal government to responsibly manage government finance for Fannie and Freddie housing is the management equivalent of placing the honey badger as the bee-hive supervisor and expecting honey yields to increase. However, the political strategy is perfect as Democrats will again blame the next federally caused housing debacle on a GOP Congress and, of course, big banks. The obvious answer is to shift all federal housing lending to the private sector and free market—if the GOP has the guts.

John Snedden

Palm Springs, Calif.

The double whammy of higher-risk loans and reduced risk premiums charged for loan guarantees is the same recipe for subprime loan defaults that sent the economy into a tailspin seven years ago.

How in the world can we be condensing a multigenerational wave of overleverage mistakes followed by debt deflation into a period of less than 10 years? Washington never was designated the primary culprit in the last mortgage meltdown. Predatory Wall Street bankers bore the brunt of media, public and Washington outrage over imprudent lending to unqualified borrowers. Washington’s insistence that those loans be made was an inconvenient but largely ignored truth. Another reason for the rapid return to poor lending standards is that the pain of debt deflation was mitigated for many borrowers as overleverage was shifted from the private sector to Washington and costs were spread to taxpayers, well-qualified borrowers and financial institutions. A shorter-term wave of fairness, income redistribution and deficit spending so far has kept at sea the longer-term wave of aggregate debt retrenchment and fiscal prudence. Washington’s hasty return to housing built on financial sand is a “fool me twice, shame on me” washout that will be both nasty and deserved.

Mark Breen

Greensboro, N.C.

Posted on February 3, 2015, in Postings. Bookmark the permalink. Leave a comment.

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