Daily Archives: January 13, 2012

If JPMorgan’s Dimon Were In Charge, Housing Would Be Fixed | Bedford Hills Realtor

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(Updates with mortgage debt outstanding in ninth paragraph and to show Dimon doesn’t want the job in sixth.)

Jan. 13 (Bloomberg) — Jamie Dimon has a plan to fix the U.S. housing market: lock mortgage lenders and regulators behind closed doors until they figure it out.

“I would convene all the people involved in the business, I would close the door, I’d stay there until we resolved a bunch of these issues so we could have a more healthy mortgage market,” the 55-year-old chief executive officer of JPMorgan Chase & Co. said today.

The patchwork of U.S. and international regulatory policies governing the housing and mortgage markets are hampering recovery here and abroad, Dimon said on a conference call with analysts after the New York-based bank released fourth-quarter earnings. In the U.S., state foreclosure laws conflict with a variety of federal policies on refinancing or modifying loans to troubled borrowers, Dimon said.

Leadership is needed to overhaul the industry, including reviving the market for private-label residential mortgage bonds and reforming regulations governing mortgage repurchases and foreclosures, he said.

“You could fix all this if someone was in charge,” Dimon said, tapping on the table for emphasis. “No one is in charge.”

Dimon didn’t suggest that he should be the one to take the job, nor did he say that he would want it.

Government Agencies

U.S. housing policy is set by federal, state and local agencies including the Federal Reserve, Federal Deposit Insurance Corp., Department of Housing and Urban Development, Federal Housing Finance Agency, Federal Housing Administration, Treasury Department, more than 50 state attorneys general and state bank supervisors, as well as local municipalities, which enforce foreclosure laws.

Some borrowers have been unable to get mortgages or refinance existing loans because lenders, along with Fannie Mae and Freddie Mac, which own or guarantee almost 50 percent of the U.S. mortgage market, have tightened underwriting standards to require higher credit scores and bigger downpayments.

After climbing to a peak of $11.2 trillion in 2007, total mortgage debt outstanding on single-family homes fell 7.4 percent to $10.3 trillion as of Sept. 30 as banks curtailed loans to consumers, according to Federal Reserve data.

AG Talks

The nation’s largest lenders, including JPMorgan, Bank of America Corp. and Citigroup Inc., are currently negotiating with state attorneys general to settle claims lenders improperly foreclosed on borrowers without the proper documentation.

Dimon also criticized U.S. and international policies that work against the goal of sparking an economic rebound.

“We’re shooting ourselves in the foot everywhere around the world,” Dimon said. “If you looked at the inconsistencies and the counter cyclical and pro-cyclical things, it’s crazy. It’s not the way to get a recovery going.”

While U.S. lawmakers and Obama administration officials criticize banks for failing to lend to consumers, he said banks are hamstrung by strict underwriting rules. It’s no better in Europe where central bank policy is sometimes at odds with local governments, further delaying recovery there and hampering job growth, according to Dimon.

“No one is really in charge of putting these things together and realizing the negative effects it’s causing,” Dimon said. Conflicting policies will make the recovery “more painful and slower,” he said. “We all want jobs. This is not job creating.”

ECB Praise

Dimon praised the European Central Bank’s move to provide three-year loans to the region’s banks and to accept a wider variety of collateral, saying the policy eliminated the risk a bank runs short of funds for at least the next year. European banks aren’t using the program to expand their purchases of sovereign debt or interbank lending because other regulators want banks to hold less of those assets, not more, Dimon said.

“It’s quite clear that regulatory policy, government policy, central bank policy, it’s not coordinated,” Dimon said. “It’s making the situation worse, not better. Basically, there’s no one in charge of the global financial system.”

–Editors: Steve Dickson, William Ahearn

via news.businessweek.com

Armonk Realtor | Fed’s housing ideas won’t fix market

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WE SHOULDN’T count on the housing market to carry America back into economic uplands.

Last week, Federal Reserve Chairman Ben Bernanke sent a white paper to Congress outlining possible reforms to current housing policies. The paper proposes converting bank-owned properties into rental units and reducing borrowing costs for owners who are at risk of default. Some experimentation along these lines makes sense, but attempts to rejigger the market only go so far — and the barriers to success are high.

Bernanke’s frustration with housing is understandable. The seasonally adjusted Case-Shiller price data for October 2011 showed a decline from the previous month in 16 out of 20 markets, including Greater Boston. The housing market malaise weighs on the larger economy because low prices mean fewer construction jobs and because homeowners spend less when they feel less wealthy.

Yet while macroeconomic conditions might improve if the housing market perked up, it’s not obvious that the government should look for ways to artificially push up home prices.

Low housing prices means greater housing affordability, and current prices are closer to what market fundamentals would justify than the inflated prices of five years ago were. We overbuilt by nearly 3 million housing units during the boom, so we cannot avoid a painful period of limited construction that allows demand to catch up with supply.

The paper proposes converting bank-owned real estate into rental housing to reduce the stock of vacant homes.

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Because the Federal Reserve knows the limits of government policy-making, it’s focusing its attention on two narrow problem areas: the large supply of vacant homes, and the ample number of owners potentially facing foreclosure.

The paper proposes converting bank-owned real estate into rental housing to reduce the stock of vacant homes. America does need to turn towards renting after an undue emphasis on owner occupancy. But our current vast supply of vacant housing was built to be owned, not rented, and conversion is quite difficult.

As landlords know, renting is a tricky business that is made easier with compact, ideally multi-family units – like Boston’s triple-deckers, unlike newly vacant homes built in exurbia. There is a close connection between housing type and ownership. More than 85 percent of single-family detached houses are owner-occupied, while more than 85 percent of units in large multi-family buildings are rented.

The Fed’s proposal may hold some promise in denser areas of Boston and adjacent cities and towns, but it quickly breaks down in more outlying areas. Renting single-family detached houses is difficult, because renters don’t have the right incentives to provide the sweat equity that homes need. Some estimates suggest that homes lose 1 percent of their value each year when rented, and those are homes selected for the rental market. Newly constructed exurban homes have far more potential downside, especially if they are hard for landlords to monitor.

Despite the dangers, I’d support a modest experimental rental program, if it can be done without subsidy. Maybe the government could run an auction, but sell only if rental companies exceed a certain price.

The Fed paper’s second primary proposal is to modify loans for owners who owe more on their mortgages than their homes are worth. Other programs have tried this already, with limited success, but the Fed suggests further steps to help homeowners, such as eliminating the refinancing fees that the government-controlled Fannie Mae and Freddie Mac charge in certain riskier situations. Freddie and Fannie might also refinance underwater loans made by private lenders.

While the Fed should want to help distressed borrowers, we should be wary of imposing more financial risks on Fannie and Freddie. Taxpayers are already out hundreds of billions of dollars because of past risky mortgages. I favor a simple cash payment of under $10,000 to ease the pain for foreclosed families; that form of aid provides humanitarian relief without keeping people in homes that they can’t afford.

Even if Fannie and Freddie modify many distressed loans, that won’t rekindle the housing market. Real housing prices did not rise between 1991 and 1998, when our economy roared after the last housing bust. We don’t need another new housing boom to bring America back.

Try BostonGlobe.com today and get two weeks FREE. Edward L. Glaeser, a professor of economics at Harvard University, is author of “The Triumph of the City.’’ His column appears regularly in the Globe.

via bostonglobe.com