D.C. & Mortgages-The Conection
by Bruce Krasting
Two seemingly unrelated developments in the nations mortgage mess this past week. They both point to how difficult it will be to bring some stability back to the system. I am wondering if they are connected.
The first came as a surprise to me. Mr. Joseph Smith was supposed to be confirmed as the Director of the Federal Housing Finance Authority. Smith was a state banking commissioner from North Carolina. He was a White House pick. Up until last week I thought he was a shoe-in for the job. Kaboom.
Smith is out. Nixed at the last minute by none other than Richard Shelby (R. AL). The ranking member of Banking, Housing and Urban Affairs waved his arms and sent Smith back to North Carolina. Senator Shelby had this to say:
Shelby’s main concern was that Smith would be a “lapdog” to outside pressure to use the GSEs, at taxpayer expense, as vehicles for large-scale homeowner assistance programs.
Lapdog? Maybe, I don’t really know. But I doubt that is the reason for canning Mr. Smith. This is politics. Senator Shelby wants his own guy running things over at the FHFA. It is much easier to steer the outcome that way. The early talk is that Mr. Smith is going to be re-nominated. I doubt it. Come Jan. 1 there is a new set of voters on this. If Shelby is saying “no” in December; the majority will say no in January.
We need a very strong hand in this position. 2011 will be the year that Fannie Mae/Freddie Mac get put on the operating table and decisions will be made what role these two dogs will have for the next decade or so. Needless to say this is a critical step if we are to have an outcome that moves us away from socialized mortgage finance. At this point the D.C. lenders are 95+% of the new mortgage market. One way or the other that number is coming down. How our dependency on Washington for the loot that keeps the real estate market alive is resolved will be make or break for the entire economy.
Normally I would say the side show political fight over this appointment was just normal D.C. fun and games. Not the case this time. Keep an eye on this fight, it will provide clues on the direction this is headed.