Five Simple Ways GSE Reform Can Narrow the Homeownership Gap
By Karen Shaw Petrou
With house prices reaching new highs each month, it is easy to come to the conclusion that U.S. residential housing has fully recovered since the depth of the financial crisis. However, the housing recovery is as unequal as the rest of U.S. income and wealth distribution. When it comes to housing, the gap between those at the upper ends of the wealth ladder and lower-income Americans has widened markedly since the financial crisis, despite the trillions of direct and indirect subsidies that taxpayers provide to the housing finance system. Homeownership, of course, isn’t always the right decision for households at the very bottom of the income spectrum, but it’s still the best path to long-term wealth accumulation for younger and low-to-moderate-income Americans. With Congress and the administration set to reconsider how Fannie Mae, Freddie Mac, the Federal Housing Administration and the Federal Home Loan banks support residential finance, now is the time to assess why a market in which 90% of mortgages are backed by the U.S. taxpayer fails to meet the housing market’s most urgent needs.
De novo capital requirements are a 'sin tax': Petrou
By Lalita Clozel
In the midst of a public feud between federal regulators on the right process for chartering de novo banks, a leading analyst is arguing that they should instead focus on loosening capital standards for newcomers. “As long as there is a ‘sin tax’ on new banks in the form of punitive capital requirements that force realized return well below other comparably prudent investment options, new charters will be few [and] far between,” Karen Shaw Petrou, managing partner of Federal Financial Analytics, said in a paper released Wednesday. The paper noted that the Federal Deposit Insurance Corp. holds new banks to high capital requirement standards for several years after they first apply, a restriction that could be one of the key reasons investors are reluctant to apply.
Why Volcker Rule reform won't happen quickly
By Lalita Clozel
The Office of the Comptroller of the Currency’s move this week to solicit feedback on rolling back the Volcker Rule was only the first step in a long process, yet observers say it shows how fractured the five agencies tasked with implementing the proprietary trading ban have become. In theory, the regulators tasked with handling the complex rulemaking have all signaled they believe it’s too complicated and needs to be revised. But acting Comptroller of the Currency Keith Noreika jumped out in front by issuing a proposal asking for ways to simplify it. ...He “is front-running [the other agencies], that’s for sure,” said Karen Shaw Petrou, a managing partner at Federal Financial Analytics. “It has the advantage of generating hopefully useful public comment, [to which] the other agencies can’t say no.”
The financial and housing market rescue left many Americans behind
By Andrea Riquier
Federal policy meant to stabilize the financial system and housing market has worsened inequality, with particularly damaging implications for the housing market, a new report argues. The paper, from the Washington-based consultancy Federal Financial Analytics, argues that policy steps that were implemented to stabilize the financial system, strengthen bank balance sheets, and lay out better protections for consumers and taxpayers, have had unintended consequences. The housing market now has “recovered” only for the wealthiest, cutting off the engine of wealth creation for the rest of America, the paper’s author, Karen Shaw Petrou, told MarketWatch. “I want this paper to draw policymaker attention. Homeownership is the most important source of wealth equality for low and moderate income Americans and for economic security,” said Petrou, who is Federal Financial Analytics’ co-founder and managing partner.
Postcrisis Policies Drive Housing Inequility
By Sarah Chacko
Housing inequality has worsened since the 2008 financial crisis, despite trillions of dollars in affordable-housing subsidies, according to a paper by Karen Shaw Petrou, managing partner of Federal Financial Analytics, Inc. “Key inequality drivers are the [Federal Reserve’s] portfolio, ultralow interest rates, certain aspects of the new bank capital-and-liquidity rules, and the qualified-mortgage criteria,” she writes. Her paper outlines policy changes that congress and the White House might consider.