A Letter From The Postman……

Posted By on December 21, 2010

A group of 52 business and financial luminaries have signed an open letter to U.S. Regulators (Geithner, Bernanke, et al.) on the need for national standards on mortgages.

The signators are an impressive yet eclectic group.  As an example, we see Nouriel Roubini; William Dunkelberg (NFIB); Bob Eisenbeis; Chris Whalen and Jim Bianco.  Many of these names are familiar to this blog through articles we have posted during the past few years.  We suggest that politicians pay attention to these suggestions and make adjustments accordingly!

Here’s how they begin:

We the undersigned write to you regarding the urgent need to develop nationalstandards for originating, selling and servicing mortgage loans. The private residential mortgage securitization market is frozen as to new issuance. The housing marketis suffering from a dearth of credit, which is causing a serious lack of confidence among potential homebuyers.

A little bit later, they paint a bleak picture of potential consequences:

Why is there such urgency? Because of the ongoing litany of revelations pertaining to inadequate servicing, lost loan modification documents, and improper foreclosures which reveal significant problems in the mortgage servicing industry. Problems of this magnitude are a threat not only to the economic recovery, but to the safety and soundness of all insured depository institutions. Banks rely upon a functioning secondary market in home mortgages for liquidity management purposes. The chaotic situation in the mortgage market today demands immediate action to ensure all parties are treated fairly and to restore the confidence needed to support a recovery in real estate markets and the entire U.S. economy.

“…..to the safety and soundness of all insured depository institutions” (our emphasis) sounds like systemic risk.  They certainly are right that the mortgage market is seizing up.

The foreclosure process seems to be frozen solid.  That, in turn, is inhibiting new mortgage securitization.

Let’s hope the letter opens the discussion and moves the problem to page one where it belongs.

Quoted from Art Cashin on the floor of the New York Stock Exchange

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