Politicians and government leaders did not have a comprehensive knowledge of the mortgage and appraisal industries as they struggled to set the policy that avoided an even deeper financial crisis than what occurred in 2008, said former U.S. Congressman Paul Kanjorski during a technology conference ongoing in Las Vegas this week.
The former Democratic representative from Pennsylvania said the extent of the brewing financial crisis was so severe, that secret meetings were held where members of Congress and officials from the Federal Reserve and Treasury Department asked for help from 40 Nobel prize-winning economists.
“The clear consensus of all 40 was if we failed to act, then the American market would fail and within 72 hours, the entire world market would have failed,” Kanjorski said.
He added that economists believed it would have taken decades to rebuild the global economy and in the event of a total depression, the country had enough food for three weeks. Kanjorski said a military unit based in North Carolina was on standby in event that Washington D.C. had to be protected from the ensuing chaos.
The financial bailout was “put together with spit and Scotch tape,” but was the best option the federal government could orchestrate in a short amount of time, he added.
He targeted credit ratings agencies as a source for much of the problems that led to the collapse of the mortgage industry, calling them an “abomination,” that needs to be better regulated.
Kanjorski said the appraisal industry faces similar regulatory scrutiny. In a room of more than 100, fewer than 10 raised their hands when Kanjorski asked how many attendees have ever contacted their politicians in Congress or state-level representatives. Kanjorski encouraged the audience members to be proactive in the rule making process ongoing for appraisal guidelines in the Dodd-Frank legislation.
He said the “dirty little secret” of extensive legislation like Dodd-Frank is that mistakes are made, necessitating “corrective legislation,” to work out issues that come up during the rulemaking process. Kanjorski called for minimum standards for state real estate laws to better equip federal regulators.
“Your positions are in jeopardy if this isn’t worked out,” Kanjorski warned, adding he believes there will be a federal standard for what constitutes the “reasonable and customary” fee that appraisers must be paid.
“We did not do a perfect job, but there was not a perfect job that could be done” in writing Dodd-Frank. he said.
Much like the recovery of AIG, Kanjorski believes Fannie Mae and Freddie Mac could be revived, but it will take at least five to seven years. He said it’s possible the federal government will recoup the billions it’s infused in the government-sponsored enterprises and said current estimates of the projected cost to keep Fannie and Freddie afloat may be inflated.
Kanjorski said Fannie and Freddie could even recover to the point that they would return to private companies, but added that he believes there are also serious discussions within the federal government of consolidating Fannie, Freddie, the Federal Housing Administration and other government-backed mortgage operations into a single entity.
“It’s going to be really healthy and we’re going to get it done,” he said.
