Robert C. Hockett, financial regulations expert and professor of law at Cornell University, discusses the pros and cons of President Obama’s mortgage overhaul plan, including the shut-down of Fannie Mae and Freddie Mac. Hockett is an architect of the increasingly popular plan for rescuing underwater mortgages through eminent domain.
Hockett says:
“It is very good news that the president and a bipartisan group of senators are once again focusing on the nation's still ailing primary and secondary mortgage markets and, in so doing, looking again to expanding mortgage refinance opportunities. It is also good news that they are looking to change the unsustainable hybrid status ¬– on the one hand private, on the other hand publicly guaranteed – of Fannie and Freddie. Finally, it is likewise to be welcomed that the President and Senate are looking to assure the continuing availability of the traditional 30-year fixed rate mortgage, which has been the backbone of stable American housing markets since the federal government began insuring such loans in 1934. “However, two cautionary notes should be sounded.
“The first is that refinancing opportunity alone is not enough to end the ongoing mortgage slump. In dozens of American municipalities, there has been no housing 'recovery' to speak of, and there will not be until principal reduction becomes available on a large scale.
“The second cautionary note is that maintaining availability of the 30-year mortgage will not prevent a renewal of predatory subprime lending of the sort that brought us the bubble and bust. With the 'carrot' of mortgage insurance for the traditional mortgage – which after all was with us through the bubble years too – must come the 'stick' of prohibitions on predatory subprime mortgage products. This will be possible only if the new Consumer Financial Protection Bureau works as effectively as does Federal Housing Administration.”
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