If you like mortgages you should read this Fed white paper for Congress on the housing market though I sort of get the sense that Ben Bernanke’s heart isn’t in it. As he says, “Our goal is not to provide a detailed blueprint, but rather to outline issues and tradeoffs that policymakers might consider,” which is quite white-papery of him; the lack of enthusiasm for finding an actionable plan probably comes from the facts that (1) these issues are quite hard and (2) no one will do anything about it anyway because it’s Congress.
So the white paper does in fact mostly lay out tradeoffs that you can ponder quietly, like the one where nobody is lending (bad!) because nobody is confident that they can meet GSE underwriting standards (hmm, we want banks to not sell crap loans to Fannie and Freddie, right?). Or the suggestion, which has been kicked around for a while, to convert foreclosed homes into rentals, which on the one hand:
[Real estate owned] holders will likely get better pricing on these sales if the program is designed to be attractive to a wide variety of investors. Selling to third-party investors via competitive auction processes may also improve the loss recoveries.
But on the other hand:
An REO-to-rental program should also consider the effects that poorly managed or maintained properties have on communities and, in particular, ensure that communities are not damaged by rental practices. For example, investors might be allowed to bid on properties only after demonstrating some experience with property management and commitment to rehabilitation of properties. Experienced nonprofit organizations with established ties to the community could also play a natural role as rental managers.
Well, wait … you’re going to expand it to the broadest possible pool of buyers, and then sell to the highest bidder, so the banks/GSEs can get the highest possible recovery, but you’re also going to limit the pool of buyers and give preference to nonprofits who will paint them nicely? Because I’m thinking that the highest bidder will likely be the slumlord. Bernanke gets these conflicts and points them out with great understatement, saying “Nonetheless, some actions that cause greater losses to be sustained by the GSEs in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery.”
So, yes, mostly tradeoffs. My favorite part though is a geeky bit toward the end:
Among other problems, the current system for lien registration in many jurisdictions is antiquated, largely manual, and not reliably available in cross-jurisdictional form. Jurisdictions do not record liens in a consistent manner, and moreover, not all lien holders are required to register their liens. This lack of organization has made it difficult for regulators and policymakers to assess and address the issues raised by junior lien holders when a senior mortgage is being considered for modification. Requiring all holders of loans backed by residential real estate to register with a national lien registry would mitigate this information gap and would allow regulators, policymakers, and market participants to construct a more comprehensive picture of housing debt.
The national lien registry could also record the name of the servicer. Currently, parties with a legitimate interest in contacting the servicer have little to go on from the land records because, among other reasons, many liens have been recorded only in the name of the trustee or of Mortgage Electronic Registration Systems (MERS). Registering the servicer, and updating the information when servicing is transferred, could help local governments and nonprofits, for example, who might be working to resolve the status of vacant or abandoned properties. Implementing a modernized registry could build on systems that have been put in place locally in some jurisdictions and could be designed to retain a role for state and local governments as the default collectors of information, as long as the information is collected in an efficient and consistent manner.
This is … so … obviously … right. And no tradeoffs! Everyone wins! I continue to not understand the white-hot rage that MERS inspires in a lot of people, and that’s partly because I have been to a county land registry and looked up a chain of title in an ancient scrapbook, basically, and it was really a stupid experience. So it seems obvious to me that keeping track of mortgages in a centralized computerized registry is a big improvement over that. But, yeah, it sort of sucks that you can’t look up who owns or services a mortgage in MERS because it’s privately administered. Having a public national registry that actually uses a damn computer, so that mortgages can be transferred and serviced and examined in at least a twentieth-century manner, seems like a no-brainer way to split that difference.
It’s a great, unhedged suggestion – and it’s hard to imagine Congress going for it. States are really into having their own land registries, for reasons that are unclear to me. I think it stems from those registries being (1) old and (2) a source of revenue for lawyers. In any case, imagine a Republican congressperson taking a traditional power of the states and giving it to an intrusive federal bureaucracy. Or imagine a Democratic congressperson computerizing and federalizing local land records and putting all those lawyers and record-room civil servants out of work. Still, we can hope that the simplest, least ambitious, least offensive, and most obviously efficiency enhancing part of the Fed’s white paper is not dead on arrival just because it’s not particularly good politics.
The U.S. Housing Market: Current Conditions and Policy Considerations [FRB]
Bernanke Tells Lawmakers More Action Needed to Fix Housing [Real Time Economics]