Do you agree with Barney Frank?

When I was in Washington, D.C., last week, Rep. Barney Frank (D-Mass.) and a couple of other politicians addressed a group of journalists gathered on Capitol Hill to cover the administration's overhaul of finance rules. I hesitated to blog on it because have you ever heard the man speak? It's a stream of mumbling.

With that caveat, he said a couple of discernible things worth recounting.

No. 1: "The notion that homeownership is a universal goal is greatly flawed," Frank said. There are people "for whom rental housing is ideal." His point: Homeownership society thinking contributed to the housing bubble.

No. 2: "The ability to securitize 100% of loans caused the bubble," he said. One of the critical changes going forward is that lenders keep some "skin in the game," he said, and retain at least a 5% stake in the loans they make.

I agree on No. 1 and, as for No. 2, I think a 5% stake is better than nothing, but I have no idea if it's enough.

And while we're talking about having skin in the game, he concluded with this idea: When home prices appreciate, a lot of problems can go unchecked and unnoticed. "But when the tide goes out," he said, "you can see who has been swimming naked."

-- Lauren Beale

Thoughts? Comments?

Photo: Rep. Barney Frank (D-Mass.) says lenders need to retain at least a 5% stake in the loans they make. Credit: Brendan Smialowski / Bloomberg News

Comments

[Tim K.]

I'm not sure I believe Barney Frank is being completely honest here. I mean, he's the same guy who felt that we should let Fannie and Freddie take on even more risky loans last year.

5% skin in the game is peanuts. There is a reason people demand 20% down. Once people lose more than 10% down, they want to walk away from mortgages. 20% is insurance for even more distressed times, and I think this qualifies as a distressed time.

[Dave Atkins]

As for his last point, I guess that would make the event, a full "moon."

[Native Angeleno]

BF is right to a degree. No one is saying everyone must own a home, however. I suspect that red herring he throws out is to limit the availabliity of home ownership for those who do want one, that the Dem plans will prove to fit perfectly the Repub agenda the entirety of Democratic Party officialdom has adopted over the gross ignorance of the fools who think the good one is an alternative to the bad.

Barney Frank is a corporate Democrat. His votes AND COMMENTS repeatedly prove it. As head of the House Banking Committee, he has LOBBIED his fellow Dems to make permanent the corrupt Bush tax cuts for the top 1%.

Our hijacked govt will remain out of our control and the bought-and-owned property of banksters and the Gravy Train of Death, aka Cheney's Military-Industrial neverending war Complex, until we stop enabling and start replacing these conservatives in liberal clothing.

[Dan V]

5% refers to the original lender/underwriter keeping an interest in the loan they sourced before selling it. It probably should be a lot more. Financial institutions that keep their own loans generally are more familiar with their borrowers and as a result suffer fewer losses. A great example are credit unions which beat banks hands down in customer service and attentiveness to customer needs.

[mr.bilko]

Warren Buffet said that the best way to prevent housing bubbles is to require a 20% down payment. Requiring 20% down eliminates the house flippers, speculators, gamblers and the ones with dodgy credit. In other words, those responsible for the current crisis.

[Laker]

Barney Frank is one of the people that is responsible for giving loans to people that could never afford them.
He was exactly on the opposite side of point (1) and helped push for home ownership as he was getting paid by the NAR, home builders, and ACORN.

The problem is that as he's saying, " the tide goes out,...you can see who has been swimming naked.
Barney Frank was swimming naked, and that is very ugly picture.

[Nick]

The #1 thing the government could and should do to now to help limit future housing bubbles is to require full documentation and at least 20% real buyer money down for any loan which is funded, subsidized, or otherwise supported by any government run or affiliated agency (Fannie, Freddie, FHA, VA, banks borrowing from the Fed, etc.). The question to ask then is: what's BF's (or any other politician's) stance on that #1 thing, in words and actions? BF may have some great ideas amongst hist mumbling nonsense and left-wing insanity, but they just amount to noise on the peripherals if he can't understand and fix the #1 problem.

Dear Barney: I like your ideas in this respect. I think banks should have skin in the game, and I think home ownership has been over-promoted by the RE industry (duh). However, PLEASE FIX THE #1 PROBLEM before you do all these other things, thanks.

[tonylogan]

5% means nothing when you managed a leveraged loan portfolio. Give me a break. Because we refuse to take our medicine, this nonsense is going to last for so many years.

[Dan]

20% is more like enough skin in the game.

Buyers should also have to put down 20%-30%. If your reply to that is "who the hell in SoCal can put down 30% on an $800K home?", my reponse is "Exactly. But many more can put down 20% on a $450K home."

Soooooo, the logical conclusion would be.... that $800K home, post-bubble, is now a $450K home. Sorry if you paid $800K for that thing, I don't think there was an investment guarantee when you bought it though!

[Maggie Knowles]

5%=subprime

[Ace]

5 percent is nothing. It costs between 7 (expensive markets) and 10 percent (everywhere else) to buy and sell a house. Is it a good idea to buy something that you are underwater with on day one? Your skin has already left the game.

[itsaliar]

This idiot pushed for these banana republic loans in the first place. During the Bush era the Republicans actually began pushing to tighten approval standards. BF caused an uproar saying that Republicans were preventing hard working people from owning their own homes. BF threatened to scream "discrimination" if loan standards were tightened. And so every $30K/year worker found he/she could buy a $500,000 home with a loan that he/she could NEVER pay for.

[jonny laughter]

Wow. For those that keep talking about how much skin in the game a borrower should have in the game: re-read point 2. hint: It's about loan securitization not banks and borrowers. I will say, when it comes to eCONomics Barney Frank is in way over his head. It's actually frightening for some who knows so little about financial mechanisms to be chair of the Financial Services Committee. But I will say telling a bank they can't sell off assets in their entirety is a pretty big step in the right direction. Or am I mistaken in people's misunderstanding, in which case, I'm surprised you free marketeers are actually advocating banks should have to hold on a larger percentage of these loans. Shouldn't the free market decide! BBAD indeed.

[Rich]

I believe the mortgage broker system played a substantial role in making the bubble--banks relied on brokers to pipeline loans to them so they would not have to hire, train, pay, and maintain their own staff, but the brokers took away commission without having any risk. Currently mortgage brokers aren't being used much, but the structural problem is pretty much the same as the problem buyers and sellers have with realtors; nobody knows who they really work for and they have no incentive to keep down costs. If originating banks have to keep some portion of the transaction and can't just keep the servicing piece (but certainly more than 5%), then they'll have an incentive to scrutinize any mortgage brokers they deal with...

[Michael Snyder]

It's important to remember; this is the financial wizard who paid for the services of a brothel with his Visa card. Now I really don't care if you choose to use a brothel, or even run one out of your Washington town home. But anyone so indiscreet as to pay for the services of a brothel using their Visa card lacks the financial acumen to run an enterprise of the size & complexity of the United States.

Now in the year 0001 p.t. (post tarp) he's suddenly a financial consultant of the highest order, capable of assigning regulation & bringing order to the multi trillion dollar mess he allowed his Wall St. buddies to build on his watch.

Anybody want to bid on a bridge? I've stock in several. What about an investment in a gravity inverter? The PA turnpike?

I thought not.

Barney Frank is lucky to manage the dribble on his chin. Being a "born again responsible legislator" is just another convenient moniker to appease the media. All I need as proof of his intent is his 5% mandate. Since Joe Sixpack needs 20% in the game, 5% seem a bit inequitable.

Once again the Politicos are busy covering up the real sub-prime in this crisis. That would be the rabid repackaging, re-selling and leveraging these loans until Wall St. built a Ponzi scheme that made Madoff look like a piker.

When the trillions of dollars worth of hot air in the derivatives market are unwound; when derivatives are regulated into disclosure standards and accounting practices on a par with stocks; and when top tier executive compensation once again comes into line with rank & file wages; then I'll beleive a word out of Barney Frank's mouth.

Until then; if he tells me the time, I'm checkin' my watch.

[SMRR]

One of the stupidest men in Washington. Should openly be ridiculed for his speech impediment.

[Sell SellSell]

Just saw Peter Hong's LAME front page story. how f'ing lazy are you people?

price "stabilization" is not real. this is capitulation at the high end where sellers are starting to drop prices. this causes an apparent rise in median prices.

BK is too good for LAT

[PeteR]

Securitization was just ONE of the reasons the bubble happened. The other components (which Barney wants you to ignore) were ridiculously lowered lending standards and careless and/or reckless borrowers.

Since Barney has been for years among the strongest supporters of reduced lending standards ("affordable housing" in Barneyspeak), he'd like everyone to think it was some abstract financial phenomenon that bears the blame.

[Jeff T]

It's time to get Barney Frank out of office. He is up for re-election in 2010. Barney has a challenger for his seat. Instead of complaining, lets give all that we can to his challenger (Earl Sholley). Even though I dont live in MA. I am going to support Sholley, just so Frank doesn't get elected again. http://Sholleyforcongress.us

[Albert U]

Barney Frank is essentially right. Besides, here in L.A. it makes more sense to rent. Home prices remain way to expensive. Once sellers realize that practically nobody can put 20-30 percent down on an $800,000 shotgun shack, prices will drop to accommodate the new reality. Those folks who bought high are going to have to just suck it up.

Oh, btw, the supposed "masters of the universe" out on Wall Street and the mortage/RE industry are the ones who "f"-ed things up. C'mon guys, leave the dumb politicians alone :)

[mucker]

It would be decent if Barney Frank would give credit where credit is due. If I am not mistaken on the source it was Warren Buffet who made the comment about the tide going out to reveal the naked swimmers. What else is Barney Frank stealing? Money from real estate lobbyists? Nah, they give it to him. He is, along with them stealing money from American citizens. Yes, get him out of office. And I lean Democratic.