Kip Esquire, commenting on recently enacted New York lending-reform legislation:
It's quite simple really: A mortgage is meaningless, absolutely meaningless, without an enforceable right to foreclose in the event of default. To ask a lender to make a mortgage loan with little or no foreclosure protection is like asking a supermarket to let people take whatever groceries they want and pay whenever they feel like it — or not ever. [emphasis added]
Of course, it was never the function of Fannie and Freddie to buy subprime mortgages in the first place. Indeed, it was the prospect of being able to sell off your loans to the GSEs that was supposed to nudge banks into making only high-quality loans at all. So much for that idea.
And no doubt the activist legislators in Albany and other state capitals (not to mention Washington) will eventually respond by dredging up the dreaded r-word to strong-arm banks into making risky loans to unqualified borrowers — and the whole cycle will begin again.
The first "mortgage crisis" isn't even over yet and politicians are already laying the groundwork for the next one.
Back in the early 1990s, a colleague, a student, and I visited Lithuania where we made several presentations along these same lines, emphasizing the importance of having carefully designed bankruptcy laws as an integral backdrop for not just mortgages, but all loans and contracts.