Advocates and Bankers Join to Fight Loan Rules

That left consumer advocates and civil rights groups frequently at odds with bankers, mortgage lenders and their lobbyists during the debate over the financial regulation act last year, which aims to rein in the subprime mortgage excesses that inflated the housing bubble.

Now, as banking regulators are rewriting the rules for the mortgage market, unusual alliances have sprung up in opposition to tighter lending standards. Advocacy groups like the N.A.A.C.P. and the National Council of La Raza, a Latino civil rights organization, on the one hand, and the American Bankers Association on the other, are joining together to fight rules they say could make home loans less affordable for minority and working-class Americans.

The growing alliance between civil-rights organizations and banking lobbyists could extend beyond the current round of financial rule-making. If Congress turns its focus to restructuring Fannie Mae and Freddie Mac, for example, the same groups could voice similar concerns over anything that restricts the availability of credit for first-time home buyers.

“I think everybody agrees that the enthusiasm for promoting home ownership went way too far,” said David Stevens, chief executive of the Mortgage Bankers Association. “But now the risk is that we go too far the other way. We still need to be able to make affordable mortgages that don’t just go to the wealthy, who can afford the biggest down payments and who have the most positive credit ratings.”

For the uncommon alliance, the first point of attack is on a proposal that would require sellers of mortgage-backed securities to retain part of the risk should a package of loans go sour. The sellers would have to keep on their books at least 5 percent of the value of any baskets of loans they purchase from lenders and then resell to investors. One of the few exceptions to the requirement would be for mortgages on which the home buyer has made a down payment equal to 20 percent of the purchase price.

“Most people don’t have 20 percent to put down,” said Janis Bowdler, a project director in La Raza’s office of research, advocacy and legislation. “These rules will so significantly deter the ability of first-time buyers to break into the market that we will see a real decline in home ownership.”

The initial proposals on “risk retention” by sellers of mortgage-backed securities are likely to have limited effect, largely because Congress provided an exemption for loans that are sold to the Federal Housing Administration and Ginnie Mae, the Government National Mortgage Association. Regulators want to extend that exemption to Fannie Mae and Freddie Mac. Those and other government-sponsored housing finance enterprises currently purchase about 90 percent of new mortgage loans made today.

Republicans in Congress and the Obama administration have vowed to get the government out of the mortgage business, letting the private market take over Fannie and Freddie’s functions of supporting the market for home loans. But lenders and consumer advocates say any privatizations could disrupt lending, making matters worse and outweighing the protections they were designed to offer.

Any standards that apply to the private mortgage market will have to be reflected in government housing finance entities that help low-income and minority borrowers, said Barry Zigas, director of housing policy for the Consumer Federation of America. “Are you going to tell taxpayers that the F.H.A. should have lower standards and take more risk than you expect private investors to take?,” he said.

Even the legislators who wrote the law on risk retention say that the proposal misses the mark. A bipartisan group of three United States senators — Mary L. Landrieu, a Louisiana Democrat, Kay R. Hagen, a Democrat from North Carolina, and Johnny Isakson, a Georgia Republican — wrote to regulators last month that a required 20 percent down payment “goes beyond the intent and language of the statute.”

Edward Wyatt reported from Washington and Ben Protess from New York.

View the original article here

Economic Memo: Employment Data May Be the Key to the President’s Job

Seventeen months before the next election, it is increasingly clear that President Obama must defy that trend to keep his job.

Roughly 9 percent of Americans who want to go to work cannot find an employer. Companies are firing fewer people, but hiring remains anemic. And the vast majority of economic forecasters, including the president’s own advisers, predict only modest progress by November 2012.

The latest job numbers, due Friday, are expected to provide new cause for concern. Other indicators suggest the pace of growth is flagging. Weak manufacturing data, a gloomy reading on jobs in advance of Friday’s report and a drop in auto sales led the markets to their worst close since August.

But the grim reality of widespread unemployment is drawing little response from Washington. The Federal Reserve says it is all but tapped out. There is even less reason to expect Congressional action. Both Democrats and Republicans see clear steps to create jobs, but they are trying to walk in opposite directions and are making little progress.

Republicans have set the terms of debate by pressing for large cuts in federal spending, which they say will encourage private investment. Democrats have found themselves battling to minimize and postpone such cuts, which they fear will cause new job losses.

House Republicans told the president that they would not support new spending to spur growth during a meeting at the White House on Wednesday.

“The discussion really focused on the philosophical difference on whether Washington should continue to pump money into the economy or should we provide an incentive for entrepreneurs and small businesses to grow,” said Eric Cantor, the majority leader. “The president talked about a need for us to continue to quote-unquote invest from Washington’s standpoint, and for a lot of us that’s code for more Washington spending, something that we can’t afford right now.”

The White House, its possibilities constrained by the gridlock, has offered no new grand plans. After agreeing to extend the Bush-era tax cuts and reducing the payroll tax last December, the administration has focused on smaller ideas, like streamlining corporate taxation and increasing American exports to Asia and Latin America.

“It’s a very tough predicament,” said Jared Bernstein, who until April was economic policy adviser to Vice President Joseph R. Biden Jr. “Is there any political appetite for something that would resemble another large Keynesian stimulus? Obviously no. You can say that’s what we should do and you’d probably be right, but that’s pretty academic.”

More than 13.7 million Americans were unable to find work in April; most had been seeking jobs for months. Millions more have stopped trying. Their inability to earn money is a personal catastrophe; studies show that the chance of finding new work slips away with time. It is also a strain on their families, charities and public support programs.

The Federal Reserve, the nation’s central bank, has the means and the mandate to reduce unemployment by pumping money into the economy.

As financial markets nearly collapsed in 2008, the Fed unleashed a series of unprecedented programs, first to arrest the crisis and then to promote recovery, investing more than $2 trillion. The final installment, a $600 billion bond-buying program, ends in June.

Now, however, the leaders of the central bank say they are reluctant to do more. The Fed’s chairman, Ben S. Bernanke, said in April that more money might not increase growth, but there was a growing risk that it would accelerate inflation.

Congress charged the Fed in 1978 with minimizing unemployment and inflation. Those goals, however, are often in conflict, and the Fed has made clear that inflation is its priority. Fed officials argue in part that maintaining slow, steady inflation forms a basis for enduring economic expansion.

Eric S. Rosengren, president of the Federal Reserve Bank of Boston, said in a recent interview that the Fed had reached the limits of responsible policy.

View the original article here