Housing and banking special interest groups as well as a group that represents state level banking regulators have weighed in with their opinions and concerns about the banking bailout proposal which is rolling out piecemeal from the Federal Reserve and the Department of the Treasury. Two of the groups are less than happy with portions of the proposed policies.
On the neutral to positive side of the comments, the National Association of Realtors® (NAR) said on Monday that it supported "the ongoing bipartisan efforts to address the current crisis in the financial and secondary markets."
NAR President Richard Gaylord said, "Many securities are being valued at pennies on the dollar due to the very high leverage ratio and illiquidity of certain mortgage-backed securities. Unrealistically low valuations are paralyzing the balance sheets of financial institutions and have hindered liquidity flow.
"Responsible government intervention will restore a functioning market benefiting homeowners, those who wish to buy a home, financial institutions, the economy and ultimately the taxpayers. We support efforts to stabilize financial markets to allow rational valuation of assets, expedite refinancing and relief efforts for homeowners, and other measures to reestablish a level of confidence in the housing credit markets. NAR will work diligently with Congress and the administration to achieve these goals as well as the broader goal of reforming the housing finance system."
The National Association of Homebuilders (NAHB) also expressed their support and offered help in crafting the final bailout package. Speaking for the NAHB, executive vice president and CEO Jerry Howard said that policymakers must realize the root causes of the current crisis - falling home prices, mounting foreclosures and a frozen credit market - must be addressed now and that any plan must get to the heart of the problem to successfully stabilize mortgage markets and home prices and restore confidence in global financial markets. Ensuring that credit-worthy home buyers, builders and other small businesses have access to credit is absolutely essential to putting this economy back on track.
Two other groups, however, expressed reservations about the current proposals and offered suggestions for Congress to consider in formulating the final bailout package.
The Mortgage Bankers Associations (MBA) Chief Operating Officer John A. Courson first applauded the expected effects of Treasury Secretary Paulson's actions. In a statement released last Friday Courson said; "The moves Secretary Paulson announced today to increase GSE and Treasury purchases of mortgage-backed securities should provide support for mortgage rates. The fear was that the illiquidity in the financial markets we have seen this week would have reversed the recent drops in mortgage rates.
"The broader steps outlined by Treasury are aimed at ending the further meltdown in the financial markets and are designed to minimize the resulting impact of the market turmoil on the broader economy. It is another step in the long-term process of restoring a balance between the supply and demand for housing in a number of markets and thus addressing the continuing problem of mortgage delinquencies and foreclosures.
A second statement by Courson was issued on Monday in reaction to early drafts of Secretary Paulson's plan to purchase distressed mortgage assets. Courson said that he recognized that the Treasury Departments proposal was in its formulation state and that there are regulatory issues to be addressed, "we are nonetheless disappointed," he said, "that some legislators have decided this is an opportunity to tack on their favorite pet items. The markets need this facility and they need it fast."
He specifically criticized the revival of the bankruptcy cram down controversy and, calling it "irrelevant to the current discussion," said it "runs counter to the bi-partisan efforts to restore liquidity to the global capital markets. Once the fund purchases the distressed mortgages, he said, it doesn't need a bankruptcy judge to rewrite the loan balance. It can write down the loan balance itself, without Congress giving bankruptcy judges that authority.
"This is a time that requires strong leadership. It is not the time to revisit ancillary proposals that have been debated and defeated, like bankruptcy cram down. We would encourage both parties and both chambers to set aside the issues that will only bog down the process and pass a clean bill that will stabilize the markets and help keep families in their homes without permanently damaging the real estate finance system."
On Monday the Conference of State Bank Supervisors (CSBS) sent a letter to House Financial Services Committee Chairman Barney Frank, Senate Banking Committee Chairman Christopher Dodd, and Ranking Members Rep. Spencer Bachus and Sen. Richard Shelby expressing concern that the Treasury Department's plan will have a negative effect on the safety and soundness and long-term competitive posture of community and regional banks.
The letter complained that investment banks and very large retail banks appear to benefit the most from the plan even though they "have far greater culpability in the mortgage mess." On the other hand, community and regional banks, which the conference said did not generally participate in high risk lending or the securitization of these loans, "have been greatly impacted by the resulting slow down in the economy, sustained significant losses relative to their holdings of Fannie Mae and Freddie Mac preferred stock, and now face the prospect of large bank competitors eliminating their bad assets and investment firms competing directly for funds with federally insured higher yielding money market accounts. In fact, if unaddressed, without offsetting provisions, the Treasury's intervention to address systemic failure will cause collateral damage that could devastate our community banking industry."
CSBS asked that Congress, in evaluating Treasury's plan consider five suggestions to preserve community and regional banks.
- All changes should be temporary to allow Congress more time to address the issues directly.
- Community and regional banks should also be provided with the opportunity to sell problem loans to the government. In many instances, the ability to move a few construction or commercial real estate loans will return community and regional banks to a more stable and profitable condition. There should be a set aside of part of the proposed $700 billion designated for purchasing the distressed assets of community and regional banks.
- The inequity of "too big too fail" treatment and the need to protect the payment system should be addressed by providing the FDIC with more flexibility under prompt corrective action, suspending broker deposit rules, and providing full deposit insurance coverage for demand deposits (this will be especially important for small and medium sized businesses).
- Money market mutual funds should be insured under an FDIC-like administrative process subject to the same limits and industry funding requirements as required of insured depositories.
- It is not the time for regulatory reform. This deserves the "thoughtful deliberation" of Congress outside of a crisis environment.
