Tuesday, September 23, 2008

Biggest Agency Ever

Is anyone thinking about the bailout from an administrative law perspective? Policymakers are saying we need quick action on the bailout, but before we blow away $700 billion in taxpayer money and create an enormous new government agency, let's just take a moment to think about the administrative implications.

This agency is going to buy up millions of mortgages. The reason for buying them is that they're in trouble, so naturally we would expect a high rate of default on these mortgages.

What exactly is going to happen when these government-owned mortgages go into default? Someone at the new agency is going to have to handle the foreclosure or the work-out. And how exactly will that happen? Can a new agency really be up and running and ready to handle millions of troubled mortgages overnight?

Even assuming the agency outsources much of the work, I would predict that everything will come to a screeching halt for at least a year. No one will know what to do -- from a very basic, practical, nuts-and-bolts perspective -- when these mortgages go into default.

Mortgage-backed securities have already led to trouble in foreclosure actions because they're so complicated that plaintiffs find themselves unable to prove that they really own the mortgage. If a new agency comes in and buys up millions of these things, there's going to be chaos for quite a while before anyone figures out what to do.

No comments: