News and Commentary
The Cato Institute’s Diego Zuluaga wrote a post about a rule-making letter to the Consumer Financial Protection Bureau. A rule exempting GSE-backed mortgages from debt-to-income ratio rules will expire in January 2021 (a positive development), and Zuluaga proposes extending qualified mortgage protections to loans that haven’t gone delinquent within two years of origination, in addition to keeping the 43% debt-to-income ratio.
In National Review, Peter Wallison writes that the Treasury Department’s plan to end the conservatorship of Fannie Mae and Freddie Mac by fully recapitalizing them lacks a clear focus and would still expose the mortgage market to significant risk. A better plan would be to generally reduce the government’s role in the mortgage market in favor of more direct assistance to first-time homebuyers.
The Center for American Progress’ Gregg Gelzinis was featured on The Bridge podcast discussing the FSOC and the risk of future financial crises.
New Research
A new paper from the National Bureau of Economic Research finds that the mortgage market could be figuratively underwater if many homes find themselves literally underwater. Current regulations on conforming loans in areas at risk for hurricanes and other climate change-related disasters are found to benefit from an implicit subsidy from the GSEs Fannie Mae and Freddie Mac.
Just one of the many systemic failures that led to the financial crisis is the failure of rating agencies to properly measure the risk associated with various assets. A new paper from the American Economic Review models the perverse incentives of rating agencies to make risky assets seem safer to the benefit of the issuers.
A new paper finds that while past banking crises have “cleansed” (removed inefficient) banks from the financial system, this pattern was not seen in the wake of the 2008 Financial Crisis. They conclude that some of the policies designed to improve bank resilience during “good times” could reduce the effects of crises as a mechanism to force out inefficient banks.
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