'We as a nation need to ask and answer some hard questions about what we want out of our housing-finance system," Edward J. DeMarco, acting boss of the agency that regulates Fannie Mae, Freddie Mac, and the Federal Home Loan Banks, told the Senate Banking Committeeyesterday.
His questions boiled down to: What, if anything, should the government do to lower the price of home loans?
There'd be fewer home loans, at higher prices, especially to young people and first-time buyers, without some government-backed agency promising to buy the loans. Investors in recent decades have "relied upon an implicit government guarantee" by Fannie and Freddie to protect their investments against the risk of loss, DeMarco said.
The guarantee was made on riskier and riskier loans, until losses soared, banks stopped lending, and home prices collapsed, forcing a government takeover of Fannie and Freddie to keep them from failing.
We don't want to do that again. Yet if the government goes to the other extreme, pulls out of the home-loan market, and leaves the private sector in charge, there would be times when markets dove and investors and banks stopped lending all together, DeMarco warned.
So, do we need a government-backed "balance sheet of last resort?" he asked. "What level of government credit support is needed to have a mortgage market that operates efficiently?"
Maybe the government should mandate "limited catastrophic credit insurance" that would cover loan losses when the economy stalled.
Or maybe it should leave risk estimates to the private sector - while imposing strict "regulatory oversight" and more "transparency" so investors don't end up funding reckless loans.
DeMarco suggested that, if the government really wants to help first-time home buyers, it may prove more "efficient" to give them cash for "down payment assistance," instead of offering the "general subsidy" of loan guarantees for "all types of mortgage credit" that led to this crisis.
And it's still a crisis. Fannie and Freddie have burned up all their capital, plus $96 billion inTreasury stock investments; they "remain troubled and likely will require" more taxpayer money, even with the Federal Reserve's buying both companies' troubled assets.
Meanwhile, the $1-trillion-asset Federal Home Loan Banks finance system faces big losses, too, which have been masked by changes in their accounting rules, DeMarco noted.
Delinquencies are still rising at all these government-backed lenders.
And we're only in what DeMarco calls "the early stages of an important national discussion" on what to do.
Good for whom?
ICT Group Inc., the multinational call-center operator based in Newtown, said Tuesday that it had agreed to sell to Sykes Enterprises Inc., Tampa, Fla., for $15.38 a share in cash and stock.
"This is a great transaction for a great local company, by reference to where the stock had been,"Richard Aldridge, leader of a team of 13 Morgan, Lewis & Bockius L.L.P. lawyers who advised ICT, told me.
It's clearly a better deal for the shareholders, led by ICT chief executive officer John J. Brennan, compared with prices over the last year. The sale price is almost double the $8 a share ICT turned down from a would-be buyer in March, and five times what the stock was worth last fall.
It's not so clear what this means for ICT's 18,000 workers. Sykes plans to shave $20 million off ICT's yearly expenses and to boost its profitability.
Questioned by analysts and investors in a conference call, Brennan and Sykes' chief executive,Charles Sykes Jr., declined to say whom they plan to cut.
Sykes did say he's looking forward to adding ICT's centers in Mexico, India, and Australia, three markets he covets.
He had less to say about ICT facilities spread across other countries, including Pennsylvania sites in Allentown, Bloomsburg, Horsham, Lancaster, and Lock Haven, and the headquarters in Newtown.
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