One recurring problem throughout the past few months has been finding a way to prevent the massive wave of foreclosures resulting from the popping of the housing bubble. Taking some action to stop foreclosure is a good idea both for the large-scale economy -- relieve pressure on toxic securities -- and the small -- prevent neighborhoods from falling into disrepair and keep more families from putting more pressure on the social safety net. But for a variety of reasons, including the expense, much of which will likely reward bad actors such as predatory mortgage lenders, and the difficulty of determining who owns what slice of which mortgage, crafting effective policy is a challenging proposition. Previously, FDIC Chair Sheila Bair has been the chief advocate for helping out homeowners, but now she is joined by Fed Chair Ben Bernanke:
The Fed chief, Ben S. Bernanke, said the government had made serious attempts to address the housing crisis and ease the rates of foreclosures. But Mr. Bernanke said some of those programs had so far been sparsely used, and might need bolstering.
“Despite good-faith efforts by both the private and public sectors, the foreclosure rate remains too high, with adverse consequences for both those directly involved and for the broader economy,” Mr. Bernanke said in a speech in Washington. “More needs to be done.”
He sketched out a range of options, including buying delinquent mortgages in bulk and refinancing them into government-backed programs, writing down the value of a loan's principal amount in “cases of badly underwater mortgages,” to reflect the decay in real estate values, and bolstering a program run by the Federal Deposit Insurance Corporation that seeks to lower homeowners' monthly payments on delinquent mortgages.
Unfortunately, all of the ideas he brings to the table are ones that have been set aside before for reasons of massive public expenditure that rewards mortgage lenders. That may be the price we need to pay to solve this problem but it will certainly raise hackles in a variety of arenas. For more on those issues, see this post and this post.
Interestingly, there have been reports today that incoming Treasury Secretary and current President of the New York Fed Tim Geithner is trying to unseat Bair from the FDIC. On one hand, the only person quoted on-the-record in that Bloomberg piece represents an organization of banks that resents Bair's regulatory stands, but it's also possible that there have been conflicts between the two officials over the Citi Group bailout, among other controversial projects where the two have worked together .
If the rumors are true -- I'm waiting for call-backs -- it's an interesting sign of discord among the economic team, and a bit of a bummer, if BK is right about Bair's worth. From the perspective of homeowners affected by the crisis, Bair has been their main champion, and while it is nice to see Bernanke take up the torch, it would be nice to have two major economic officials supporting foreclosure prevention policies.
-- Tim Fernholz
