Financial Services and Education Project

Last fall, Countrywide Financial, then the nation's largest mortgage lender, had a curious new idea --or, more precisely, an old one. No longer would it slush foreign capital through Wall Street to make subprime loans. Instead, the lender would depend entirely on deposits from savers who would finance one another's mortgages--kind of like that humble thrift institution run by George Bailey in the movie It's a Wonderful Life.

Sadly, Countrywide waited too long to get back to basics and became the first major bank of 2008 to… more

Bair has a reputation as a consumer advocate who hasn't always won the praise of the lending industry. Two years ago, when the economy and housing were booming, she warned lenders that they needed to rework subprime loans -- or risk damaging the economy.

It wasn't a popular position at the time, said Ellen Seidman, a former director of the Office of Thrift Supervision and now a fellow at the New America Foundation.

"To some extent, she was getting the 'Hey lady, you're not supposed to be talking about… more

Ellen Seidman, director of New America Foundation's Financial Services and Education Project with the Asset Building Program, discusses the federal government’s role in providing affordable housing and promoting home ownership. 30 Issues in 30 Days continues with a look at Barack Obama's and John McCain’s plans to deal with affordable housing. Full Story

 

Ellen Seidman of the New America Foundation, who studies the financial-services industry, said the Consumer Products Safety Commission, the Federal Trade Commission and other consumer-protection efforts “have had a long history of being terribly underfunded,” making them less effective. There’s no guarantee a financial-products safety commission, strapped for funds, would escape the same fate -- especially when its goal is to intervene before “the bad stuff” gets to consumers, she said. LINK

One risk facing policy makers is that if the capital injections are seen as a government seal of approval, that could destabilize banks that don't receive investments, causing their customers to jump to other institutions, said Ellen Seidman, a former economic adviser in the Clinton administration.

"It's counterintuitive, but if we've learned one thing from this crisis, it's that we have a hard time predicting the behavior of the smaller savers and investors," said Ms. Seidman, now at the New America Foundation. LINK

Assignee liability would radically reshape that market by making everyone involved potentially responsible when things go bad. Investment banks that created mortgage-backed securities and investors who bought them would be liable for financial damage if mortgages turned out to be fraudulent. The financial industry opposed assignee liability, maintaining that it would cripple the market for asset-backed securities. Major ratings agencies later agreed that allowing unlimited damages would be disruptive. The agencies threatened to stop evaluating many bonds tied to mortgages covered by the Georgia law.

But some banking experts speculate… more

If Bank of America follows through with the loan modifications, “it would begin to break a huge logjam,” said Ellen Seidman, who studies the financial-services industry at the New America Foundation. It would set an example for other lenders -- and for the government. “But I’d hold off on getting excited about the serviced loans,” Seidman said, “until we see something starting to happen.” LINK

Ellen Seidman, financial services policy director for the New America Foundation think-tank, said the FDIC should not take on that risk without also passing on the cost.

"They've got to take into account the additional risk that they're taking on in setting the premiums," she said. "I've seen some talk of saying, 'Well, we're going to increase the deposit limit but we're not going to increase the premiums.' I don't think that makes any sense." LINK to audio

Raising the limit will be particularly helpful for small-business owners who will be able to worry less about keeping accounts at separate banks, said Ellen Seidman, financial services policy director in the Asset Building program of the New America Foundation.   "Splitting among several banks is terribly inconvenient for running a business," Seidman said. "Also, as a matter of business, the more money you have in a bank, the better services you tend to get from that bank." LINK

The failure of the largest thrift in the nation has sealed the fate of the Office of Thrift Supervision, observers said Friday.

Washington Mutual Inc. accounted for about 20% of the assets overseen by the agency and 12% of its budget. Its collapse and subsequent sale to JPMorgan Chase & Co., which said it would not keep Wamu's thrift charter, heightens concerns about the OTS' viability and… more