To Fix Housing Gary Peters and John Campbell Have A Captain Kirk Solution

Steve Dibert, MFI-Miami

“You have to learn why things work on a starship.” -Admiral James T. Kirk

When I market MFI-Miami to attorneys, I quote this line from Star Trek II: The Wrath of Khan for the simple fact that had Admiral Kirk not been on the bridge when Khan attacked the Enterprise, the crew of the Enterprise would all be dead and Khan would be the master of the universe.

In other words, if you want to bring banks and lenders under control, you need to know the mechanics of finance and exploit their weaknesses.  This is one of the reasons MFI-Miami has one of the best track records in foreclosure defense.  This also one of the reasons why the attorneys MFI-Miami works with have the best records when it comes to kicking the crap out of Fannie Mae and Freddie Mac in court.

Yesterday, I posted how Americans can’t afford to be ignorant of global economics or international finance and that there are only two politicians in Michigan that understand the mechanics of how finance works in this country.  One is Ingham County Register of Deeds, Curtis Hertel, Jr. and the other is Congressman Gary Peters.

Peters understands how the financial markets work because unlike his primary opponent, he comes from the finance world.  In his previous life, Peters was a vice president with a major brokerage firm.

Last year, Peters along with Republican Rep. John Campbell (CA-48), who also comes from a finance background, presented H.R. 1859, The Housing Finance Reform Act of 2011.  This bill was probably the one of the best bills to come out of Congress since the financial crisis began to unravel in 2007.   Unfortunately, the GOP leadership that controls the House Financial Services Committee either doesn’t understand the benefits of this bill or they are too busy overturning Zebra droppings in the Kalahari in their futile quest to find President Obama’s birth certificate.

This bill takes the best of Fannie Mae and Freddie Mac, reforms what they did wrong and takes a long term solution to insure it doesn’t happen again.

The bill gives the FHFA (Fannie Mae and Freddie Mac’s government overlord) the ability to break up Fannie Mae and Freddie Mac into five publicly owned housing finance guaranty associations (GSEs) with the FHFA acting as an oversight agency. The bill would allow for special purpose associations for specific categories of properties such as single family residences, multi-family properties, rural loans, etc. to be created.

The new GSEs would be prohibited from originating or servicing mortgages and would bar them from guaranteeing sub-prime mortgages.  They would also be prohibited from purchasing mortgages from institutions with voting interest in the association. The bill would also restrict the associations investing by limiting their investing to conventional mortgage backed securities or securities issued by the government and would bar them from engaging in any speculative trading.

The bill also limits the types of loans the associations purchase by limiting their portfolio to loans with less than an 80% loan to value ratio unless either the seller retains a 10% stake in the loan, the seller agrees to repurchase the mortgage on the demand of the association, or private mortgage insurance is used to cover unpaid principal balance in excess of 80%.

It has been over a year since this bill was introduced and it will never see the light of day because of the blinded ideologues on the both sides of the aisle who still cling to the ignorant misconception that Fannie Mae and Freddie Mac caused the housing crisis.

The truth is American home ownership is at the highest rate in the world because of Fannie Mae and Freddie Mac.   What got Fannie Mae and Freddie Mac in trouble was  not they underwrote bad loans.   It was because they made bad investment decisions by investing in mortgage backed securities created by the banks that caused the financial crisis.  This created a cascade effect that eventually affected the mortgage pools Fannie Mae and Freddie Mac insured and in 2008, they didn’t have the enough cash on hand to cover the insurance policies.

This is a good bipartisan bill and is the best solution for addressing the housing problems in this country because it solves nearly everything that went wrong with Fannie Mae and Freddie Mac.  This bill kick starts private sector investing in the secondary mortgage market, limits what the new GSEs are allowed to do and best of all, it limits taxpayer liability by spreading the liability to 5 or more GSEs instead of just two that we have now.

The one thing this bill doesn’t address is the recent actions by Fannie Mae, Freddie Mac and mortgage servicers of hoarding single family homes in order to manipulated housing market.  The foreclosure mills blame the mortgage servicers who hired them and the servicers claim the practice was initiated by Fannie Mae and Freddie Mac.  However, there was no way for Campbell and Peters to foresee this last year when they introduced the bill.

Critics will say this bill doesn’t address the immediate concerns of consumer confidence in the housing market.  This concern should be secondary to investor confidence since it’s the investors who are putting up the money for these mortgages.  These same critics say investor confidence in mortgage backed securities is at an all time low.  I say this is bullshit coming from people who don’t understand finance or mortgage lending.

There are tens of billions of dollars flowing into this country from overseas investors wanting to buy American real estate and they are forced to go through unregulated channels to purchase real estate directly.   Most of these investors are legitimate investors who believe that regardless of the financial crisis, America is still a safe place to invest.  The problem is Congress has essentially locked legitimate investors out of investing in GSEs and created an underground economy of real estate speculation that opens the door for money laundering and other nefarious activities.

If you read my piece yesterday about Hansen Clarke, you can see the difference between Clarke’s pie-in-the-sky proposal of a three year foreclosure moratorium that is based based on wishful thinking and the Campbell/Peters plan.   Where Clarke’s plan would rob money from some anonymous grandma’s pension fund to buy him a few vote in district, the Campbell/Peters plan would actually work and bringing legitimate funding back to the American housing market.

It all goes back to Admiral Kirk’s lesson to Lt. Saavik.  If you want to beat Khan you need to know how and why things work on a starship.