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March 30, 1990
Dollar strength continued to support financial markets this week, and has helped halt the rise in mortgage rates.
In its last revision, the 4th Quarter 1989 GNP came in at 1.1% growth, much weaker than a year ago. New Home Sales gained a paltry 3.1% in February, and higher mortgage rates are clearly doing damage to overextended markets.
There is more to the RTC story than a porky target for editorial barbs: home buyers need to understand the personal impact of bungled reregulation. If buying a house seems a bit more demanding on the fiance side than it used to be, considerŠ.
The RTC and its demented cousin, the Office of Thrift Supervision (OTS), sit astride one trillion dollars worth of paralyzed mortgage lending power.
One third has been "sold" to entrepreneurs or other institutions. The buyers are under threat from Congress that the sale deals were too sweet and Congress is considering changing the terms. Fear on the part of the buyers is justified, as Congress has changed the capital rules for most S&L sales in the 197987 era. This segement of the industry is mothballed until Congress makes up its mind.
Another third is already in (or on the way to) RTC's buttery fingers. While in limbo, these outfits make no loans, buy no loans, and gradually lose the people who know how to make loans. Naturally, RTC is astonished that the market value of S&Ls declines while in the RTC freezer.
The "surviving" third is trying to find a way to meet new, tough guy capital standards. Let's say it's easier to find the Red October than new capital.
Meanwhile, nearly all residential mortgage money must come from securitized mortgages. Wall Street is doing its part pretty well: there is enough money, and rates are fair. But without S&L competition, Fannie, Freddie, and FHA introduce a new underwriting torture device every day.
The Bush nominee to head OTS, Timothy Ryan, is a capable Washington lawyer with not one day's experience in real estate finance. Congress will bounce the nomination by midApril, and then we will spend months trying to find a new volunteer.
About then, the courts will inform Congress that no, it can't either retroactively abridge contracts created by Federal regulators. Maybe hundreds of seized S&Ls will then have to be unseized.
Maybe it's not so bad. Just think what Washington would be doing if it weren't busy rescuing S&Ls.
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