by Charles W. Calomiris, Stephen H. Haber
April 09, 2014
After two years of collapse and three years of stagnation, home prices finally rallied in 2013. In order to prevent banks from issuing a new round of mortgages that borrowers cannot afford, the Consumer Financial Protection Bureau recently issued rules governing “Qualifying Mortgages” (QM). To prevent banks from using depositors’ savings to make risky investments in securities and their derivatives, the Volcker Rule, a provision of the 2010 Dodd-Frank Act, was finally implemented last December. Many of the other regulatory reforms of Dodd-Frank have been in place since 2010, including the designation of the country’s largest banks as Systemically Important Financial Institutions (SIFIs). The sad truth is that these reforms are either irrelevant or have been lobbied to the point of irrelevancy. The main source of potential trouble has not been addressed. Until average Americans punish political leaders for acquiescing to the subsidization of mortgage risk, effective reform will remain elusive.