Thursday, August 13, 2009

Banks’ Part in Mortgage Screw Up

I have been sitting here in a DC hospital for almost a week and I found out this morning I’ll be here for another four days. Merde!!

I’ve tried two blog efforts, but have lost my enthusiasm part way through. In those I tried talking about Jim Lockhart’s departure, but not Jim Lockhart. (Let him go peacefully.) He did a more responsible job—consistent with the former GSE’s new conservatorship status--after the Bush Team left town than before.

I waxed about what I knew of some of the individuals whose names have shown up as possible successors at FHFA. Then, I wrote about the systemic implications of Freddie’s recent profits, as well as what it means for whoever next heads the company. However, the Muse escaped me.

Not any longer. in this blog, I want to discuss what the Obama Administration needs to do to fix this problem of banks slow walking the necessary process of re-writing billions in toxic mortgage loans.

First off, there are too many Administration “chefs” trying to cook this mortgage meal. Treasury, the Fed, FDIC, CoC, Fannie and Freddie, etc. etc. etc (positioning themselves for "huzzahs, when the job is completed).

They are using different operating systems and rules and not doing well, at all.

Geithner would have done far better picking on the GSEs and paying them $500 or some amount for every successfully converted bad loan to good loan.

A motivated Fannie or Freddie could have produced 2 or 3 million mortgage refis by now.

Last week, the Obama Administration was hyperventilating and gnashing its teeth about the snail effort by the mortgage industry to restructure underwater loans.

Treasury published a bunch of names of the least successful lender-mortgage restructurers, i.e. those that had most successfully avoided their responsibilities.

That’s a positive step, but ignores a major part of the “pace” problem, and it hardly is enough. These guys have armadillo skins, while claiming they are sensitive.

But, back to the banks. The other reason why the mortgage investors and servicers are moving so slow is that the government (Treasury) has supplied them with so much money that they think the Feds will give them more to do the necessary mortgage work they should have been doing all along.

The mortgage mess is more one for Treasury than the individual institutions.

Instead of just publishing the names of the miscreant big bank lenders, Secretary Geithner should fire as many major banks execs as it takes before the larger members of the industry get the message. Take away their status, cash, and perks and they can move quite quickly.

The banks don’t respect anything but brute regulatory force. Once displayed, you’ll see how soon they move to overcome the problems they claim are stopping them from doing the required mortgage restructuring.

Do it, Tim. Just do it and then step back and enjoy all of the rose petals and congressional praise aimed at you.

(Excuse any typos, etc. Written under less than ideal circumstances.)

Maloni 8-13-2009


John M said...

Debi and I wish you a speedy recovery.

Meanwhile, I'll be delighted to re-post this on Doom after some light editing. Obviously "fire as many major banks execs as it takes until ...", etc.

Get well soon :-)

Bill Maloni said...

Edit away, McDuff!

Derek Pilecki said...

I would love to hear your thoughts about how Freddie's profitable quarter changes the political dynamic for the GSEs. Although they probably won't report profits each quarter going forward, it seems like it'll be hard to wipe-out shareholders in a profitable company. Thanks.

Bill Maloni said...

Derek--Policy making isn't pretty, consistent, nor necessarily rationale.

But, here--from 30,000 feet--is what I think is doable substantively and politically.

The companies will begin to earn money and will benefit from some of the recent accounting changes.

They'll start repaying the Treasury whatever is owed.

The key to all of this F&F taking on some private viability, is that we have no conventional secondary mortgage market in the country, just Fannie and Freddie as Treasury appendages.

Nothing "private/private" has emerged to replace F&F and I don't expect that to change.

At some point, I expect the Obama Administration (either this one or the next one) to scramble all of those eggs and come up with a new hybrid F&F, with a housing finance mission, but some caps on growth, debt, and comp.

Anonymous said...

I am glad to hear that you are doing better and back....I was getting bored without new posts in your blog. The discussions about the future of the GSEs are taking place now and something is cooking in Wall Street that is attracting investors. Here's an interesting article that could help to explain why these corporations are still attractive to investor despite some of the media negative perception.
-Blue Agent

Anonymous said...

Also, Donald Marron's excellent article at Seeking Alpha:

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