Fixing the mortgage crisis, but how?

Now that the mortgages are well and truly melting down the experts are gathering to offer advice.

Here’s Josiah Baker, professor at George Mason University, with his ideas.

The mortgage crisis requires legislation that supports punishing existing lenders for poor or misleading businesses practices. Specifically, enforcement must focus on originators and brokers.

But you could look far and wide to find regulators actually cracking down on abusive lenders, he writes.

The government does not need additional regulations — they just need to enforce the existing regulations.

Well, yes.  That all sounds fine.  And Barney Frank wants to lift the loan limits on Fannie Mae and Freddie Mac.

But let’s step back a bit.

The reason that abusive lenders (and listening to their voices on the mortgage radio ads, you knew you’d heard that guy before—maybe on a used car lot?) were flourishing was that money was sloshing around, and anyone with a pulse could set up a mortgage company and sell mortgages.  That’s where the problem started.  Tons of money sloshing around looking for a borrower.  And of course, when we are talking about money sloshing around we are usually talking about the government.

For instance, there are the government’s mortgage giants, Fannie Mae, Freddie Mac, and Ginny Mae, all in the business of throwing money at housing.  When you subsidize things like that you are going to get distortions in the market.

It’s not too surprising that the downmarket end of the business was up to some nasty shenanigans.  It usually is.  In the downmarket mortgage business the government has been pressuring lenders to lower standards for years.

But why should the politicians complain.  When things go wrong it creates splendid opportunities for politicians to posture and to blame other people for things that they initially set in motion.

So the best we can hope for is to get out of the mortgage mess without the politicians really screwing things up.

Give them a chance and they will create a royal mess.  Remember the Great Depression?