This past Sunday, The New York Times ran a terrific article on the career and departure of Sheila Bair from the FDIC.
Bair favored “market discipline” — meaning shareholders and debt holders would take losses ahead of depositors and taxpayers — over bailouts, which she abhorred. She didn’t spend a lot of time fretting over bank profitability; if banks had to become less profitable, postcrisis, in order to reduce the threat they posed to the system, so be it. (“Our job is to protect bank customers, not banks,” she told me.) And she was a fierce, and often lonely, proponent of widespread mortgage modification, for reasons both compassionate (to help struggling homeowners stay in their homes) and economic (fewer foreclosures would help the troubled housing market recover more quickly).
UHAB Organizing has reached out to the FDIC recently because we also want banks to responsibly modify and sell mortgages. It has been surprising to see how little they have responded to the Predatory Equity crisis, even under the Bair’s leadership.
The regulators in this fight should be our greatest allies. They are one of the few bodies that can force the banks to ensure the “safeness and soundness” of properties and prevent them from continuing to lend in a predatory way. So why is it that they turn a blind eye when it comes to multi-family lending?
If – god forbid – another tenant dies as a result of a faulty elevator shaft, or a kid falls out a window due to loose window panes, we will have to add the FDIC to the list of parties to blame for this phenomenon. They have been informed of what is happening and they have rejected their role in regulating the banks that are making predatory multi-family loans in New York.
As Bair steps down and Martin Gruenberg steps up, we must continue to collectively encourage the FDIC to take a strong stance in this fight against bad bank behavior. They are potential ally with an extraordinary ability to have a positive impact on the future of this crisis. They must expand their “tough stance” on banks and bondholders to include provisions for modifying multi-family loans that affect housing conditions. They need to regulate lenders so that new and existing mortgages reflect the real value of the physical asset.