Speaker offers economic help

Sarah Steimer

“Gee, we didn’t have to ruin this,” said Susan Hoffman, political science professor from Western Michigan University, during her mortgage crisis presentation yesterday.

Hoffman, also a former practicing urban planner and author of Politics and Banking, drew a crowd of about 25 to the Student Center where she spoke. The presentation was covered by WKSU as well.

Hoffman’s discussion focused on the lessons learned and lost in the housing sector since the Great Depression. She explained the policy history of home loans and related it to today’s loan crisis.

The Great Depression brought about the Federal Home Loan Bank Act of 1932, Hoffman said. This created Federal Home Loan banks, which were an alternative to the mainstream lenders.

“George Bailey wouldn’t have had to give all his vacation money away,” Hoffman joked in reference to the It’s a Wonderful Life star if he had the benefit of an FHL bank.

The Home Owners’ Loan Act in 1933 basically restructured the FHL Bank Act, Hoffman said. With the HOL Act, mortgages were restructured for homeowners.

This mortgage structure was deregulated in 1980, and Hoffman said she sees the root of today’s problem beginning in that decade. This deregulation, she said, permitted adjustable rate mortgages and allowed any interest rate to be changed.

As before the Great Depression, mortgage brokers re-emerged as the primary source of mortgage, Hoffman explained. Now, over half of all mortgages are issued by non-banks, which are non-regulated financial institutions.

This is the problem, Hoffman said. Because these institutions are not government-regulated, sometimes audits of files are overlooked.

Hoffman said the foreclosure crisis was foreseen, but there is not much housing-loan understanding within the government. By the end of 2007, 20 percent of sub-prime adjustable rate mortgages, 17 percent of sub-prime loans, and 5.5 percent of prime adjustable rate mortgages were default, Hoffman reported.

The lesson in this, she said, is that current approaches don’t work. A fix like that of the Home Owners Loan Corp. from the Great Depression would be a plausible answer, Hoffman said. Politicians are anti-HOLC. Rather, they are pushing harder for voluntary cooperation from loan companies and other quick fixes. She added that politicians may be shying away from a Great Depression-era fix because they don’t want to scare an already recession-fearing public.

“The Fed is trying to save big financial institutions,” Hoffman said. “But what about the rest of us?”

When asked what she expects to happen with the loan crisis, Hoffman responded that, “I would be really surprised if they create the type of financial institution I’m suggesting. I’d be really surprised.”

She said she believes the government will solve the long-term problem with more regulation, but she said she’s not sure about how or if they’ll solve the emergency problem.

Casey Christofaris, a senior political science major who was at the speech, said he finds the loan crisis a difficult concept to grasp, and he still isn’t clear on everything. He explained Hoffman made a “pretty good presentation.”

Others present were in agreement that after Hoffman’s explanations, it would be hard to argue that the government shouldn’t re-regulate the mortgage system.

Contact student finance reporter Sarah Steimer at [email protected].