KeNo's Housing and Economic Portal: Friday July 1 Housing and Economic stories

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“Capture” of Regulators by Fannie Mae and Freddie MacBecker - (www.becker-posner-blog.com) Political economists describe the process whereby government officials end up being the servants rather than the masters of the firms they are regulating as the “capture” by the industry of their regulators. When regulators are captured, much of what they do is motivated, consciously or not, by a desire to help the companies they are regulating, even when the social goals that the regulators should pursue are very different. A famous illustration of capture is given by the way airlines were regulated under the Civil Aeronautics Board (CAB) from 1940 to 1978. Large airlines of those times, like American and Delta, naturally had a strong incentive to try to keep new airlines from entering the industry. As a compliant ally of the airline industry, the CAB did not approve one new interstate airline during this almost 40-year period. Many airlines entered the industry when President Carter abolished the CAB, and some of the old standbys, such as Pan Am and Eastern, ceased operations because they could not adjust to a competitive environment. An economically disastrous example of the capture theory is provided by the disgraceful regulation of the two mortgages housing behemoths, Fannie Mae and Freddie Mac, before and leading up to the financial crisis. In their fascinating recent book, Reckless Endangerment, Gretchen Morgenson and Joshua Rosner explore in great detail how Fannie Mae used political connections and intimidation of anyone who stood in their way to gain a highly dominant position in the residential mortgage market. The authors’ show that various government officials, including congressmen and presidential cabinet members, closed their eyes to what these two government-supported enterprises (GSE) were doing. They allowed them to take on enormous risks, while publicly defending their behavior as not being highly risky.

Bad Housing News: Why Homebuyers Aren't Buying - (www.northjersey.com) Why aren't homebuyers buying? Maybe they've heard the recent spate of bad housing news. Home prices fell again, and housing experts are predicting an official "double dip" price decline. We've lost nearly a decade of value, as home prices have slipped back to where they were around 2001-02. The number of people applying for purchase mortgages, rather than refinance mortgages, has fallen all the way to levels last seen around 1997-98. Some 61 percent of home sales are distressed, meaning that they are short sales or foreclosures. No wonder housing prices are falling. Mortgage lenders want homebuyers to put down more in cash, and Congress is talking about requiring a far higher down payment for FHA loans for those whose credit score is less than optimal. The number of new homes sold is at a record low, at least since records were kept starting in 1963.

Affluent black county mired in mortgage mess - (msnbc.msn.com) America’s wealthiest black county is in trouble. Prince George’s County, Md., has gained prominence in recent years as the most affluent county in America with a majority African-American population. Average income in the county is almost double the national average for black families, according to the Census Bureau’s 2009 American Community Survey. But the county, adjacent to the District of Columbia, has been laid low by the recession and the mortgage meltdown and now holds a more dubious distinction: a rising foreclosure rate that ranks as the worst in Maryland. More than half of all housing sales in the county so far this year have been properties in foreclosure, a rate that dwarfs other counties in the state, according to MRIS, which provides listing services for real estate agents. This has caused a domino effect of social, economic and financial problems to ripple throughout Prince George’s communities.

Attorney: Realtor group violates law on speech - (irvinehomes.ocregister.com) A lawyer for an Irvine blogger who has taken on the real estate industry and accused agents of being dishonest says the Orange County Association of Realtors' formal grievance against the writer is at odds with a California law protecting freedom of speech. . Scott Sims, attorney for Larry Roberts, who writes the IrvineHousingBlog.com, says in a new letter to OCAR that Roberts' opinions constitute "free speech protected by California's anti-SLAPP statute. "If OCAR does not immediately serve notices of dismissal of all charges, we will take the appropriate actions to protect Roberts' constitutionally protected rights,'' states the letter by Sims, a partner at Manderson, Schafer & McKinlay of Newport Beach. Sims also writes, "OCAR's efforts to harm Roberts' business and reputation, and to haul Roberts before a secret kangaroo court pre-disposed to convict him for unknown acts, have no place in American society.'' The OCAR grievance says Roberts and two other people have violated a code of ethics rule stating that "Realtors must not knowingly lie about competitors'' as well as a general set of regulations governing how MLS information is used on the Internet. The grievance doesn't say specifically what Roberts -- who is not a Realtor --or anyone else did, according to Roberts, who showed a copy of it to The Orange County Register. An OCAR spokeswoman, Rena Budesky, declined to discuss the matter with a reporter, saying grievances are confidential.

Proposal to toughen loan standards - (www.washingtonpost.com) Consumer borrowing is so rampant in the United States that most people who took out a mortgage last year to buy a home ended up spending more than a third of their income to pay that loan and other debts. Now, a federal proposal would target borrowers with heavy debt loads by making it tougher for them to get the cheapest mortgages. The initiative is part of a broader measure that aims to prevent another foreclosure crisis and could confront borrowers who do not meet certain conditions with higher interest rates and fees. The debt restrictions are on top of other conditions, including a requirement that borrowers pony up a 20 percent down payment to qualify for the cheapest mortgages. While the down-payment condition has captured the public spotlight since the government unveiled its plan in March, experts who track the housing industry say the proposed debt limits could be just as onerous for borrowers.