Will we finally listen to Sheila Bair?

Driving around for 20 minutes last night looking for parking in my neighborhood turned out to be a real treat.  The Diane Rehm show began on my ride home, featuring a discussion of the US residential real estate market by two economist-wonks, a leading non-profit advocate for CRA investment in low-income communities, and a representative from the Mortgage Bankers Association. I highly recommend downloading the podcast for anyone who wants to better understand the nuances of the mortgage crisis, including the geographical and ownership differences behind the foreclosures rates, as well as possible government responses.

What I learned from these four men was that investors comprise about 10 to 15% of foreclosed owners, though they are concentrated in areas that underwent a glut in new construction: CA, NV, and FL were cited multiple times.  I knew generally that there are differences between these regions and the high foreclosure rates in middle- to low-income metro-urban neighborhoods, often in single or multi-family homes most likely to be owned by families and people of color and the elderly (obviously not mutually exclusive groups).  Christopher Foote, a policy advisor from the Boston Fed talked about our problem here of handling foreclosures in a built environment of triple-decker multi-family properties: a single condo owner may suddenly face foreclosure on the other units in the three story buildings that dominate our urban landscape.  Or, tenants in all three units may suddenly face the risk of eviction as the landlord is foreclosed.   Throughout 2008 anti-eviction activism has been on the rise here in Boston.

The advocate on last night’s show was John Taylor, President & CEO of the National Community Reinvestment Coalition.  John and I attended a DC meeting on Gulf Coast recovery in 2007.  I respect his work (and am partial to the fact that he grew up in the same neighborhood as my mom).  John can be contentious in discussions, willing to push back on conventional wisdom – in my experience with him he chided the non-profit/government community for not also aggressively pursuing private investment in the Gulf.  He was the first to remind listeners that the major fault lay with the financial deregulation and industry speculation that falsely inflated housing prices and encouraged buyers to take on too much risk, for instance by lenders coming to dominate the appraisals market, thus infusing the process with incentive to push up housing values.  Chr*st.

Almost one quarter of homeowners are estimated to owe more on their mortgage than the property is now worth.  As always, it’s tricky to discuss systematic responses to financial crises when the regional and demographic differences are so striking.  Last night, John was the first to raise and praise FDIC Chairwoman Sheila Bair’s name in government attempts to respond fairly and intelligently to the housing crisis.  Dean Baker from the Center for Economic & Policy Research added that she should be on the upcoming Administration’s Treasury Secretary shortlist.  I’d heard Bair’s name a handful of times in the last month or so, though frankly she’s been dwarfed by coverage of Paulson and his fitful “solutions.”  But could that be changing?  It should.

Bair was calling for more stringent regulation of the sub-prime market back in 2001.  Bair has already demonstrated some success with her takeover of IndyMac in writing down mortgages to more affordable terms without necessarily reducing the mortgage’s value.  Underway in the Bush Administration right now is a discussion between implementing this plan at a national scale versus expanding HUD programs to work with troubled borrowers.  (Oh sure, now Bush wants to use HUD.  Forgive me if I’m skeptical that this idea in his hands holds any promise.)

As Baker points out, the FDIC is “during ordinary times…a relative backwater,” so given Bair’s job function and position, it’s no surprise she was not part of the in-crowd of decision makers (via) in the run-up to and in the current crisis.  But she has

“shown a willingness to both confront the big Wall Street banks and to stand up for homeowners. When the FDIC took over IndyMac, one of the mass market subprime lenders, Bair ordered a moratorium on foreclosures on the mortgages held by the bank. She announced that the FDIC would arrange write-downs that allowed homeowners to stay in their home wherever possible. Bair has since been vocal in her criticisms of other banks for being unwilling to take the same steps.”

When liberal wonks and advocates on a DC public radio talk show heap praise like this, I am inclined to listen and think.  How about you?


3 Responses to “Will we finally listen to Sheila Bair?”

  1. October 30, 2008 at 7:28 pm

    I disagree slightly – Bair’s been vocal in the past few weeks, and neither Paulson nor Bernanke have done anything to tamp her down or silence her… so I think she’s saying what everyone’s kind of thinking. That said, I am more skeptical of her plan to rewrite mortgages without touching valuation – that seems like a “kick the can” theory, and unlikely to hold up – especially in the hard markets like CA, NV and FL, where foreclosed properties are establishing the floor, lots of people woul get next to no relief just rewriting at better rates and improved payment plans. The whole mortgage is probably hash.

    While the one quarter statistic is sobering, the horror show is that we’re still in the early stages – Ezra (or maybe it was Kevin Drum at Mother Jones) had a nice graph this week showing that subprimes grow in problems through next year.,. and then for the next three years, a huge collection of Alt A adjustables hit the system. Never mind that, with the economy in a massive contraction, people with perfectly fine, 30 year fixed mortgages may hit default just by losing their jobs. The thing that I keep coming back to is… we’re all in massive denial about the enormity of things here. This is huge, and just beginning.

    I admire Bair, for the reasons you do – she’s direct, she’s taking action, she’s agitating for the right people in the right way. But I think her tools are limited, and getting more so – she can’t take over many more banks, certainly not the hugest ones with some of the biggest problem mortgages, nor, I think, can she, or others, force fit a massive set of renegotiations on mortgage paper – the problem all along has been about who qualifies, what constitutes a fix, and how to apply standards across the board. And the reality is, most likely, that we just have to suck up that the underlying value of most, if not all homes, is about to sink. And with that, a very basic underpinning of our economy just falls apart. Beyond that, too is the fact that many people in these situations should probably not owm homes. Add that all up… and I wish Bair well, but I’m not confident she’s got the fix. I don’t think anyone does.

  2. 2 grahamad
    October 30, 2008 at 8:39 pm

    I think she is definitely a start. Again, I hear you, but then should we do nothing? One of the things with this is that it is so enormous, do you believe there’s a giant solution out there somewhere, or that we’re totally f*cked and therefore nothing will work at all? The way you talk it sounds that binary.

  3. October 30, 2008 at 9:46 pm

    or that we’re totally f*cked and therefore nothing will work at all

    Bingo. 😦

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