"I am not an advocate for frequent changes in laws and constitutions. But laws and institutions must go hand in hand with the progress of the human mind. As that becomes more developed, more enlightened, as new discoveries are made, new truths discovered and manners and opinions change, with the change of circumstances, institutions must advance also to keep pace with the times. We might as well require a man to wear still the coat which fitted him when a boy as civilized society to remain ever under the regimen of their barbarous ancestors." - Thomas Jefferson (appears in the Jefferson Memorial)

The mortgage fight

malloy CHUCK

In Idaho

Sen. Mike Crapo’s legislative effort to shake up the mortgage industry is the tale of two bills – and an example of why nothing gets done in Washington.

This is the best of bills and it is the worst of bills. It places stability in the mortgage industry and it destroys the mortgage industry. It preserves the 30-year mortgage and it destroys the 30-year mortgage. It saves taxpayers from potential economic disaster and it smashes the American Dream to bits. That’s what the special interests and hired guns are saying from both sides of the debate, and it raises the question: Who’s right?

This is not a battle between Republicans and Democrats, because Crapo has been working with Sen. Tim Johnson, D-S.D., on the legislation that would phase out the two government mortgage giants, Fannie Mae and Freddie Mac. This fight is between special interests, which are spending hundreds of thousands of dollars, or even millions, to either move the bill forward or kill it. Both sides say they are only out to protect the people, but I don’t buy it.

The intense lobbying effort tells me that the special interests are trying to protect themselves.
In this political dog fight, you have Crapo at odds with former Sen. Phil Gramm with a cast that includes the CEO of the Mortgage Bankers Association weighing in against a member of the Securities Commission’s investor advisory board – all of whom are creating different levels of confusion.

The only clear and concise message I’ve seen has come from a group called 60 Plus, which has run a series of attack ads against Crapo. Are the ads totally accurate? Probably not; but who cares? Run the ad enough times and a new truth emerges. The effort by 60 Plus has Crapo scrambling to try to reverse the negative perception. Unfortunately for him, dull op-eds and long-winded statements don’t cut it.

The 60 Plus ad shows side-by-side photos of Obama and Crapo as partners in a scheme to take over the mortgage industry and drive a wrecking ball into the financial futures of millions of Americans who have their financial futures tied up with Fannie and Freddie. The ad says that “ordinary Americans,” such as teachers, police officers, firefighters, could have their retirement savings taken from them. “The federal government will seize all profits,” the ad claims.

The take-away message is that Crapo is working with … gulp … Obama on anything, which is enough to cause tea party riots.

Getting rid of Fannie Mae and Freddie Mac is a tall order, but Crapo has his reasons for giving it a shot. “Fannie and Freddie greatly contributed to the housing bubble, the 2008 financial crisis and the resulting dramatic government intervention,” Crapo said. The purpose is to “wind down Fannie and Freddie, and the government domination of the housing market and promote the re-entry of private capital into our housing finance system.”

If nothing is done, Crapo said, “taxpayers will continue to be subjected to potential future economic crises related to the nearly $5 trillion in mortgages owned or guaranteed by the two entities. Inaction means more taxpayer money to fund future bailouts, continued government intervention in the housing market and the continuation of ‘too-big-to-fail.’”

A supporter of the Crapo-Johnson bill, David Stevens, the president and CEO of the Mortgage Bankers Association, says we shouldn’t pay attention to groups such as 60 Plus, saying they are lacking in transparency and engaging in “outright lies.”
Opponents, meanwhile, are raising a lot of technical points. If that isn’t enough, they bring up Obamacare. The bill’s alternative to Fannie and Freddie are unacceptable, according to former Sen. Gramm.

“The resulting system, like Obamacare, is rigged against the low-risk borrower,” Gramm says. “With Obamacare being so unpopular, why would we want to use its redistribution system in the housing market?”
Crapo has his work cut out for him on this one. He might be right – his bill could be the ticket to the mortgage lending’s version of Happy Valley. But he’s losing the war of perception, which probably means his bill will go nowhere.

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