My firm, Weiss Research, is issuing a landmark press release and white paper on the housing crisis, and I wanted to make sure you’re among the first to get this information.
Right now, the persistence and severity of the crisis has taken many trained observers by surprise, prompting both a re-evaluation of the investment risks and more urgent inquiries regarding viable solutions.
However, a small minority of U.S. analysts has been devoting their efforts to these very issues since the first signs of a housing bubble appeared many months ago; and Weiss Research’s Michael Larson, is certainly among them.
Mike has provided our subscribers in-depth research and forecasts of the evolving crisis with unusual foresight and precision.
He has consistently warned, well in advance, of each phase in the cycle – the growth of high-risk mortgages, the excess home inventories, the resulting decline in sales, the subsequent slump in home values, the rising rate of delinquencies, the surge in foreclosures, the losses among high risk lenders, the impacts on certain hedge funds. And he has been increasingly called upon by the media to explain these events as they unfolded.
In March of this year, recognizing that Mike’s insights could add real value to the public debate, I asked him to draw from his years of research on the industry to help develop solutions for regulators and legislators. The result is his blockbuster white paper being released today.
Our press release below provides the highlights along with a link to the report .
Press Release:
Federal Regulators, Lenders and Wall Street Blamed
for Worsening Housing and Mortgage Crisis
Investment Research Firm Offers
Nine Proposals for Recovery
JUPITER, Florida, July 19, 2007 – Federal regulators and mortgage lenders were largely responsible for a housing and mortgage crisis that’s likely to worsen, according to a white paper submitted today to the Federal Reserve by Weiss Research, Inc., an investment research firm.
The report’s author, interest rate and real estate analyst Michael Larson, demonstrates that:
- Rather than act as a moderating force, the Federal Reserve played an important role in further inflating the housing bubble that’s at the root of the current crisis.
- Rather than accept a decline in lending volume as homes became less affordable, lenders debased their standards and incurred the risk of serious long-term damage to their finances, the industry, and, ultimately, the economy.
- Wall Street’s large-scale transformation of mortgages into securities significantly boosted risk-taking.
“For many Americans, the dream of home ownership is turning into a nightmare,” writes Larson. “And although borrowers must also share a part of the blame, the burden falls on regulators and lenders to take firm steps to remedy their errors.”
63 Banks and Thrifts Named as
Among the Most Vulnerable
It is often believed that loan losses and defaults have been limited to companies specializing in higher-risk, or subprime, mortgages.
Larson takes issue with that notion, naming 63 traditional banks and thrifts that may be especially vulnerable to the crisis, based on high ratios of nonperforming mortgage loans.
“Loan delinquencies and foreclosures are rising throughout the mortgage system, and the mortgage crisis is not limited to niche players that specialized in low-quality loans,” says Larson.
Nine Proposals for a Long-Term Recovery
With the goal of avoiding quick fixes and fostering a healthy, long-term recovery, Weiss Research offers the following proposals to federal regulators and legislators:
- Closer monitoring and prompter action by the Federal Reserve to help avert run-away asset price inflation.
- Better enforcement of existing predatory lending statutes.
- Better protection of borrowers through a model akin to one recently established between the Office of Thrift Supervision (OTS) and three subsidiaries of American International Group.
- Greater focus by regulators on banks and thrifts whose mortgage performance measures are showing the most stress.
- Suitability requirements for the mortgage lending industry.
- Rather than a ban on specific lending practices, limiting them to the uniquely qualified borrowers for which they were originally designed.
- Federal training, education, licensing, and testing standards for mortgage lenders.
- Assignee liability for secondary market buyers of home loans.
- More focus on developing programs that promote saving for a down payment.
Larson concludes: “These solutions cannot be painless. But in order to pave the way for a sounder future, many of the sacrifices that were avoided in the past may have to be made in the present.”
Note to editors: Weiss Research’s white paper, “How Federal Regulators, Lenders and Wall Street Created America’s Housing Crisis: Nine Proposals for a Long-Term Recovery” was submitted to the Federal Reserve on July 19, in response to the Federal Reserve’s request for commentary on the home equity lending market and the adequacy of existing regulatory and legislative provisions in protecting the interests of consumers [Docket No. OP-1288].
Weiss Research is an independent investment research firm that provides information and tools to help investors make sounder financial decisions. Mike Larson is the associate editor of its monthly Safe Money Report and a regular contributor to its daily e-letter, Money and Markets.
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Adam Shafer, Kristen Adams, Maryellen Murphy, Red Morgan, Jennifer Newman-Amos, and Julie Trudeau.
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