Time to call Congress

Folks, it’s time to dig up the phone numbers for your congressman and your Senators. According to the Journal “worried bankers are…urgently shopping proposals to Congress and the Bush administration that could shift some of the risk for troubled loans to the federal government.” That is, to taxpayers.

One proposal, advanced by officials at Credit Suisse Group, would expand the scope of loans guaranteed by the Federal Housing Administration. The proposal would let the FHA guarantee mortgage refinancings by some delinquent borrowers.

Credit Suisse officials have met with senior officials from the Department of Housing and Urban Development, which runs the FHA, and other policy makers to discuss the proposal.

The risk: If delinquent borrowers default on their refinanced loans, the federal government (i.e. TAXPAYERS!!!) would have to absorb the loss.

I find it HIGHLY odd that Credit Suisse is leading the charge on this. If you look at the list of the big multinational banks that have been forced to write down billions due to subprime exposure, Credit Suisse ranks near the bottom. Their CEO, Brady Dougan (a product of my alma mater….The University of Chicago) has won accolades for steering his bank through the subprime minefield largely unscathed.

So why is Credit Suisse asking Congress to bail out lenders and homeowners? Like I said: odd.

The article also says JP Morgan Chase is working on its own idea “to expand the number of homeowners who could refinance into FHA-backed loans.” Jamie Dimon, JP Morgan’s CEO, is the other guy getting plaudits for leadership in the age of subprime. Hmmmm.

It’s scary that such ideas may be getting traction in Congress:

Sen. Schumer called the Credit Suisse plan “an interesting idea, which we are looking at pretty seriously.”

Schumer is my Senator here in NY so I will be placing a call to him to express my displeasure over this as well as his support for expanding conforming loan limits for Fannie and Freddie.

The crux of the problem is summed up in one line of the article:

Politicians and bankers are now abuzz with talk about broader ideas to prevent the housing market from deteriorating.

The housing market has to deteriorate. Prices are too high by any reasonable measure. The only way to “prevent” the market from deteriorating would be to keep prices artificially inflated. Short of the Federal Government buying up housing stock, which of course it can’t do, there’s no way for it to keep prices from correcting. Backing a wider swath of mortgages will just put taxpayers on the hook for steep losses as housing prices decline.

Taxpayers may already be on the hook for hundreds of billions in housing-related losses if Fannie and Freddie go under.

Get on the phone people. Call Washington and tell them you don’t want your tax dollars being used to bail out the housing market.

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