If re-elected in November, Congressman Barney Frank has vowed to continue his work in overhauling the financial system, including abolishing government-owned giants Fannie Mae and Freddie Mac.
"Fannie and Freddie will be abolished," said Frank, D-Newton, who added he plans to introduce legislation that would make it easier for loans to be restructured by restricting the rights of investors in mortgage-backed securities.
Frank gave his views on what future financial reforms are needed to strengthen the housing market at a recent luncheon at the offices of the Greater Boston Real Estate Board.
The current structure of mortgage securitization, with multiple servicers acting as the intermediaries between homeowners and the bondholders who own the underlying notes for the various liens on the property "is really not adequate to the current situation," Frank said.
He said the structure leaves "no one in charge of making decisions."
"In many cases, it is clear that it would make sense to reduce the mortgage payment and cut everybody’s losses, but how that reduction is meted out is the problem," he added.
Frank said he thinks further reform legislation is necessary to address the issue, and plans to introduce a bill that would tackle the problem in the next Congress session.
"I am determined in the coming Congress to pass legislation that it makes it very clear that for every residential mortgage – commercial would apply as well – some entity is responsible for making a decision [about whether and how to restructure a defaulted loan]," Frank said. "And if you want to invest in that package of mortgages, you will do so knowing you have given up your rights to any other fair treatment, so you don’t have a veto over [how the loan is restructured]."
Such a bill would also affect servicing. Currently, "[servicers] have no capacity to make the kind of tough decisions that have to be made," Frank said. "That’s not their fault; that’s not what they were structured for. But we’ve got to change that going forward."
Frank has been roundly criticized for 2003 comments in which he steadfastly defended the two government-sponsored mortgage giants. Republican challenger Sean Bielat has focused on Frank’s support of the entities in his efforts to unseat the 15-term Democrat next month. In recent interviews, Frank has acknowledged he "was wrong" in unilaterally supporting Fannie and Freddie, but has fought back, saying he was not alone in failing to recognize problems at the two companies.
He also addressed the question of how the government will handle the problems posed by the government sponsored entities, and suggested the federal government would have a very different, more diminished role to play in the housing market in the future.
"Fannie Mae and Freddie Mac will be abolished. The home loan banks will be retained, in very much their current situation," he said. I think they’ve functioned well. What we need to see is, does there need to be some entity that will guarantee 30-year fixed rate mortgages that are being securitized? It won’t be a government agency, and that’s the question that we have to deal with."
Frank also addressed some concerns real estate agents in attendance raised about bank processing of short sales and other transactions, in particular ongoing problems with appraisals. Based on agents’ descriptions of the ongoing issues, he suggested he would attempt to arrange a meeting between local real estate agents and executives from some of the larger national banks, similar to a previous meeting he arranged in New Bedford earlier this year.
