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.
It’s difficult to keep track of all the things that all the people are suing all the banks for regarding mortgages. A place to start is by remembering that banks stood in the middle of originating loans to people who didn’t pay them and selling them to people who are now sad that they didn’t get paid. So the flow of money was kind of Investor -> Bank -> Homeowner -> Incinerator. If you think of that flow of money, it makes sense that the people are are doing the most suing are the investors and GSEs who bought mortgages, and regulators who sort of kind of represent the investors, and so in fact there are a lot of big numbers sloshing around in pretty normal securities-fraud-y lawsuits of exactly that sort.
But there are also lawsuits, with quite large dollar numbers attached to them, that go the other way. In these, homeowners, and regulators who sort of kind of purport to speak on behalf of the homeowners, are suing the banks for really quite stonking amounts of money.
It’s analytically helpful for me to separate those suits into two further buckets: Read more »