The number of thoughtful critiques of the contemplated federal takeover of home mortgage lending grows daily. And what an eclectic group these critics are with the likes of Ralph Nader making common cause with the American Enterprise Institute.
Two of the most recent entries into the discussion are particularly worth reading. First is George Mason University professor, and Pulitzer Prize winning commentator, Steven Pearlstein, writing in The Washington Post on January 17, Pearlstein makes the case that, contrary to popular mythology, Fannie Mae and Freddie Mac, while not entirely blameless, did not cause either the financial crisis of 2008 or the mortgage crisis that triggered it.
He also sets out what he considers to be the correct prescription for reforming the two mortgage giants—spoiler alert: end the GSE's monopoly on mortgage packaging but reinvigorate regulatory oversight with greater capital requirements and insurance against losses in excess of capital paid for by actuarially sound premiums. Finally, Pearlstein turns his focus on the Corker-Warner legislation. He stops short of labeling Corker-Warner "Obamacare For Mortgage Lending" as some other critics have, but he does identify what he describes as Corker-Warner's two "glaring flaws."
According to Pearlstein, those two flaws are: (i) the absence of a "mechanism for the government to step in as a lender of last resort when private banks and investors decide to flee the mortgage market, as history shows they regularly do," and (ii) it drives a "stake-through-the-heart...of Fan and Fred" that would "destabilize the recovering housing market."
The second entry in the Must Read sweepstakes is an op-ed appearing in the January 27 edition of Providence Business News written by Ray Mathieu, former CFO/managing director of Providence Equity Partners. Mathieu provides a reader-friendly explanation of how Fannie and Freddie provide liquidity for the mortgage market, and he does not stint in his criticism of Corker-Warner. But unlike Pearlstein, Mathieu focuses on the harm that Corker-Warner would inflict on private investors, a "huge proportion" of whom are "retirees, pension plans, insurance companies and the very community banks that were [the GSE's] customers."
Readers of the Banking Law Connection should read Pearlstein and Mathieu . . . . I only wish Bob Corker and Mark Warner would do so as well.
For further information visit Waller's Banking Law Blog
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