Reforming the troubled secondary mortgage market is one of the critical issues Congress must address as the U.S. housing market struggles to recover from collapse. Hamline University Law School’s Business Law Institute and the Hamline Law Review hosted a national symposium in October to consider cutting-edge research and reform proposals from divergent perspectives.
Keynote speaker Gary H. Stern, former President of the Minneapolis Federal Reserve Bank and current member of the FDIC Systemic Risk Advisory Committee, raised issues relating to the “Too Big to Fail” aspect of Fannie Mae and Freddie Mac, the two Government Sponsored Entities (GSEs) which dominate the secondary mortgage market and which have been in conservatorship since 2008. With respect to all the systemically important financial institutions (SIFIs), that handful of the very largest so-called “Too Big to Fail” financial entities in the U.S. economy, Stern said, “We can’t make them failsafe, so we have to make it safe for them to fail.”
The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in July 2010, aimed at comprehensive financial reform and did include orderly liquidation authority for other large financial conglomerates, but failed to address reform of the troubled U.S. secondary mortgage market. As a consequence, that controversial task remains on Congress’ to-do list for future legislation. Reform proposals currently before Congress run the gamut from complete nationalization to complete private privatization, including several hybrid public/private possibilities.
The Hamline Law School Symposium represented an opportunity for dialogue among secondary mortgage market players with very different perspectives. James C. Sivon, partner in a major Washington, D.C., law firm represented the Financial Services Roundtable, trade association for the 100 largest U.S. financial services companies. John Ryan, President and CEO of the Conference of State Bank Supervisors, identified tensions between state and federal regulatory objectives. Scott Olson, former staff member for the U.S. House of Representatives Financial Services Committee, discussed the difficulties Congress faces in crafting legislation to address secondary mortgage market problems.
Minnesota mortgage originators, including top executives from U.S. Bank Home Mortgage (one of the largest national mortgage lenders), Klein Bank (the largest family-owned bank in Minnesota) and Star Bank (a very small rural Minnesota community bank), spoke about the difficulties of making home mortgage loans in the current environment. This panel, speaking from the perspective of “Where the Rubber Meets the Road,” also included Lynne B. Barr, a lawyer with the Boston firm of Goodwin Procter LLP, who routinely represents large mortgage companies.
Law professors from more than a dozen highly ranked national law schools presented their current research and recommendations regarding U.S. homeownership policy, restrictions on bank real estate investments, executive compensation at the GSEs, securitization issues surrounding collateralized mortgage obligations (CMOs), as well as ethical issues relating to consumer protection for borrowers. Law schools represented included: George Washington University, Catholic University, Brooklyn Law School, University of Colorado, University of Illinois, Loyola University Chicago, University of Tennessee, Atlanta’s John Marshall Law School, Albany Law School, and St. John’s University.
Hamline’s symposium gave leaders from the Twin Cities business and legal communities a chance to raise questions and contribute their own suggestions. Ideas and papers from the symposium are expected to inform Congressional consideration of the controversial challenges facing the U.S. secondary mortgage market, with input from national and Minnesota viewpoints.
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