Tag: FHA

It Wasn’t the Butler

~ Karen Petrou ~ Leave a comment

By Karen and Basil Petrou

Summary

In the raft of crisis retrospectives released during the ten-year anniversary of the Great Financial Crisis, general consensus continues the conventional wisdom that subprime mortgages were the spark of the subsequent conflagration.  A new study from the Federal Reserve Banks of Atlanta and New York mobilizes formidable data to show that hapless subprime purchase-money borrowers were victims, not perpetrators.  The borrowers who did the damage that precipitated the debacle were, they find, prime borrowers whipped into a speculative frenzy by the combination of low rates and flagrantly-unwise mortgage lending.  Theoretically, post-crisis reforms have solved for this.  Actually, maybe not given the exodus of mortgage securitization from regulated entities, sharp rise in cash-out refis, and investment-focused borrowing with house prices well above affordability thresholds in many major markets.  Continue reading “It Wasn’t the Butler” →

Disquiet on the Home Front

~ Karen Petrou ~ 2 Comments

By Karen Shaw Petrou and Basil N. Petrou

On June 20, FRB Chairman Powell said, “Nine years into an expansion that has sometimes proceeded slowly, the U.S. economy is performing very well.”  Although Mr. Powell noted low labor participation, puzzling inflation, and problematic wage growth, he said that all will come right as long as the Fed stays the course.  No mention was made of unprecedented U.S. income and wealth inequality or of a housing market serving mostly the oldest, wealthiest, and most coastal among us.  Too bad – inequality and the impediments to effective monetary-policy transmission it erects are among the most important reasons that the nine years Mr. Powell cites have seen the slowest recovery in decades in concert with new threats to financial stability. Continue reading “Disquiet on the Home Front” →

Guarantees that Deliver the Equality Goods

~ Basil Petrou ~ 1 Comment

By Basil N. Petrou and Karen Shaw Petrou

At a recent meeting with senior White House and Congressional budget experts, we revisited the benefits of using federal guarantees to drive private capital to public need.  Much of the discussion centered on taxpayer protection, a significant challenge due to risk-taking incentives baked into the federal budgeting process.  There are many reasons – billions of them in fact – to reject the budgeting approach mandated by the Federal Credit Reform Act (FCRA) in favor of a fair-value methodology.  Less known and not discussed is an issue of equal importance:  getting guarantees right not just for taxpayers, but also for the regulated financial companies from which the private capital for successful guarantees must come.  Here, we lay out principles for equality-enhancing guarantees that meet needs ranging from sound mortgage lending to translational biomedical research. Continue reading “Guarantees that Deliver the Equality Goods” →

How to Turn CRA into a Positive Force for Economic Equality

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By Karen Shaw Petrou

On January 10, the Wall Street Journal confirmed that Trump Administration regulators plan to advance the reforms to the Community Reinvestment Act (CRA) first outlined in a 2017 Treasury Department report.  The CRA dates backs to an era when progressive Democrats controlled federal financial regulation and is now a hallowed artifact of policy that progressives believe advances economic equality.  Community advocates and many Democrats will thus cry foul as this Trump Administration initiative begins.  Are they right?  Does the CRA really advance economic equality?  Continue reading “How to Turn CRA into a Positive Force for Economic Equality” →

Home Ownership, Wealth Accumulation, and the FHA

~ Karen Petrou ~ 2 Comments

By Karen Shaw Petrou and Basil N. Petrou

Last Thursday, the Senate Banking Committee considered the confirmation of Brian Montgomery to be the Trump Administration’s Federal Housing Administration (FHA) Commissioner, allowing him to step back in to the shoes he filled in the George W. Bush Administration.  But, times are different now – as we’ve noted before, the U.S. is far less economically equal than it was even in 2007 and the residential-mortgage market largely serves only the most creditworthy, wealthiest households.
Continue reading “Home Ownership, Wealth Accumulation, and the FHA” →