Citing an urgent need to address questionable mortgage and foreclosure practices that have helped stall the broader economic recovery, a group of economists, analysts and financiers has signed a letter to Federal regulators, calling on them to develop national standards governing the mortgage process.
The signatories, including economists Nouriel Roubini, Dean Baker and James K. Galbraith, call on regulators to carry out their duty under the Dodd-Frank financial reform to create rules for the market in mortgages. Banks that originate mortgages must maintain "skin in the game," the letter says, so that they have a financial incentive to create reliable loans, even when they sell them to other entities.
Current mortgage practices, the letter says, are "chaotic." Bank employees have said their companies committed critical errors, such as losing, botching our otherwise falsifying paperwork -- practices that can prevent worthy homeowners from receiving mortgage modifications, or cause them to unfairly lose their homes. Last year, 2.8 million homes received foreclosure notices, according to real estate data provider RealtyTrac. And 7.4 million more will enter foreclosure this year through 2012, the Federal Reserve predicts.
"People are getting away with just about anything," said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, and a signatory of the letter. "There's a lot of real slop in assessing fines."
Baker added that while he isn't sure to what extent new regulations would alleviate the current crisis, they would help homeowners and investors going forward.
The letter's addressees include Treasury secretary Tim Geithner, FDIC chairman Sheila Bair, SEC chairman Mary Schapiro and Federal Reserve chairman Ben Bernanke.