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Mortgage Reform of Biblical Proportions

WASHINGTON ( TheStreet) -- Alex Pollock seems to know that no one agrees with him, but he doesn't seem to care. That's because he seems to think he's right.

If there were any living representation of the cheese who stood alone, it'd be Pollock at the Treasury Department's panel discussions about the future of the housing-finance industry on Tuesday. A former banker and regulator, Pollock is now a fellow at the conservative think-tank the American Enterprise Institute. His ideas for reform don't quite jibe with the industry's -- or a good portion of the political establishment.

Calling his idea a "Julius Caesar strategy," Pollock, who prides himself on cleverness, said he'd first divide the system into three parts ("like Gaul") during a transition period leading up to a system that had no GSE involvement at all. The parts active in the market would be privatized, the regulatory parts would go to the Federal Housing Administration. The existing mortgage portfolios of Fannie Mae and Freddie Mac would be wound down over time.

"There is a verse in the book of Proverbs which addresses guarantees," said Pollock, " ... and it goes like this: 'He who stands a surety for the debts of another shall smart for it.' "

He later cracked, "This may also be known as the FDIC verse," referring to that agency's reputation for being a much stricter regulator than others.

The closest anyone came to agreeing with Pollock during the conference's main discussion panels was Moody's (MCO) Chief Economist Mark Zandi. Though he stopped short of saying the government ought to outright abandon the mortgage market, he did call current policy unaffordable and advised that "the government's role in housing needs to be pulled back quite significantly."

Most other panelists -- from mortgage executives at Bank of America (BAC) and Wells Fargo (WFC), to MBS buyers like Bill Gross to affordable-housing advocates like Marc Morial to Lewis Ranieri, who essentially created the mortgage-backed securities market at Salomon Brothers in the 1980s -- tended to recognize that the government will have a place in the U.S. housing system out of necessity and politics, if nothing else.

"America has been overhoused and overconsumed, producing too many mortgages people couldn't afford," Gross said in a blunt characterization of the country's avarice. But he also said that a U.S. housing finance system absent federal assistance "isn't realistic."
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