Bankruptcy

Housing Agenda for the new Consumer Czar

By Alan White

The White House announced early this morning via a blog post that Elizabeth Warren will be appointed Assistant to the President and adviser to Treasury Secretary Geithner to begin implementation of the Consumer Financial Protection Bureau.  This intriguing move leaves open the question of who the President will nominate as Director.  Dodd-Frank requires Secretary Geithner to announce a transfer date for the CFPB to begin its work, some time between January and July of next year, and authorizes him to serve essentially as acting director of the Bureau until the Senate confirms a permanent Director.   As far as I can tell, there is no time limit for the nomination or confirmation of the permanent Director.  Obama could wait until after the fall elections, for example.

The Bureau's authority to write regulations and enforce laws does not begin until the transfer date next year.  In the meantime, however, the Warren/Geithner acting director team can take action immediately on several urgent issues. 

First the foreclosure crisis.  The statute requires the Treasury Secretary to make several improvements in the Home Affordable Modification Program, including greater transparency for homeowners dealing with mortgage servicers and greater public accountability for the servicers (who are dominated by the four big banks.)   This should be a high priority.  The enhanced mortgage servicing rules in Title XIV of Dodd-Frank took effect immediately on enactment.  These changes need to be enforced by Treasury and HUD until the new Bureau takes over.  The new rules for the mortgage industry can operate to clean up the mortgage servicing mess that homeowners now face, but only if considerably more muscle is added to the ineffective escalation and oversight system Treasury has relied on thus far.

Second, Dodd-Frank requires a report on the future of the Fannie and Freddie "conservatorship", i.e. nationalization, to be submitted by January 31, 2011.  The prevailing thinking at the White House seems to favor a gradual exit from securitization for the GSEs, converting them to insurance providers similar to FHA.  This highly problematic approach ignores the lesson of the current crisis, when private capital markets for home finance have dried up entirely, and the GSEs have been the only funding source preventing complete collapse of the housing market.  Czar Warren should weigh in on the side of preserving a public or public-utility mode for Fannie and Freddie, or their replacements, to preserve the flow of mortgage capital for low- and moderate-income home buyers, leaving the private market to fund loans to more affluent buyers. 

Third, the new law calls for major improvements in gathering and reporting information about credit markets, information which will be vital to developing fact-based regulations after the CFPB is open for business.  HUD and the CFPB are charged with creating a new public national foreclosure database.  The sooner this happens, the sooner policy can be based on timely and accurate information, available to researchers, the media and the public, rather than relying on surveys and reports from trade associations and data vendors.  Dodd-Frank also calls for more useful information about new mortgage originations to be reported under the Home Mortgage Disclosure Act.  These changes could be phased in beginning in 2011 or 2012 with prompt action by the Federal Reserve or the Bureau after the transfer date.  With all the research power of the Fed at its disposal, the Bureau can begin to address fundamental questions about the functioning of housing finance and consumer credit markets. 

Full post as published by Credit Slips on September 17, 2010 (boomark / email).