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]

18 comments (hidden to protect delicate sensibilities)
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Comments (18)

  1. Posted by Guest | January 4, 2012 at 9:04 PM

    A database of that size..

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    - M Levine

  2. Posted by Sanduski | January 5, 2012 at 7:32 AM

    Good article.

  3. Posted by maximum decimus | January 5, 2012 at 8:23 AM

    happy new year. good post

  4. Posted by Mercury | January 5, 2012 at 8:46 AM

    If renting out these foreclosed homes is such a great and economically viable idea you would think that a private buyer would have already stepped in, bought up the home(s) in question and….put out a 'For Rent' sign. What money making insight does the government have here that the rest of us shmucks have failed to grasp?

    And how 'bout we just suggest that computer idea to state and county resgistries instead? Call me cynical but I'm a little gun shy at this point about the whole well-intended-federal-bureaucracy idea thing.

  5. Posted by Alan_Stanwyk | January 5, 2012 at 9:24 AM

    Ugh, Matt and Benjy B probably spent their entire college careers in the dorms before moving back in with mom and dad until they got laid. Having rented in college and NYC for a decade, let me tell you one thing… people who rent suck! In college I tore down a wall to see what smelled behind it (it was my neighbors apparently) and now I regularly drill huge holes into walls just to see what they are made out of. People who own homes take care of them and people who rent homes destroy them… that's why this idea sucks.

    Oh, and because Matt likes it.

  6. Posted by Guest | January 5, 2012 at 10:19 AM

    Usually when I see white paper, I usually wipe with it.

  7. Posted by Guest | January 5, 2012 at 11:48 AM

    Do you also wonder what bark is made of?

  8. Posted by ahahah | January 5, 2012 at 1:42 PM

    Well, your problem is:

    A) that banks/GSEs are understaffed relative to the volume of problem loans/REOs that they need to resolve, so if a potential buyer wants to buy a loan or house, it could take months to find the right servicer to speak with and when you find the right person to talk to, it won't be worth their time to analyze your $60k offer when they're dealing with a multimillion dollar portfolio of $h!t a$s properties. To do that deal they would need sufficient documentation so that they could prove out your offer as a fair market value, which would involves a lot more cost than benefit.

    B) Banks in particular can take these assets of balance sheet and don't really have to mark-to-market, so actually selling this stuff could involve the banks realizing some substantial cash losses where they could have continued to kick the can.

    The way any of this stuff trades is in large bulk sales where people may buy the top 10% of stuff at a discount and the remaining worthless real estate sits around.

  9. Posted by Guest | January 5, 2012 at 2:40 PM

    People who rent > People who squat.

  10. Posted by Larry | January 5, 2012 at 2:52 PM

    How unusual!

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  12. Posted by Anonymous | January 6, 2012 at 11:07 AM

    I thought there was already national registration for aliens.

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  16. Posted by @searchingit | August 27, 2012 at 1:57 AM

    No one seems to get it. First of all the Fed should be allowed to go into publicly traded corporations and tell them what to do with their assets defaulted or otherwise. So they are starting with Fannie/Freddie. It's a horrible idea, outside of a few markets in MI, OH, etc. The supply of available housing is at all time lows. The data is off right now because of all the short sales on the market and relevant processing times. Go talk to the boots on the ground folks, there are not enough houses to buy right now, not for the investors, not for the homebuyers. The company I work for invests in the space with instutional capital and I can tell you that this program on a bulk level is a bad idea. Colony ended up with this pool but if they paid more than Waypoint was willing to then they over paid, then again they are over paying at auction everyday.

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