Jeffrey M. Lacker

English

Research Papers in Economics

Winter 2008 • Region Focus 1
JEFFREY M. LACKER
PRESIDENT
FEDERAL RESERVE BANK OF RICHMOND
Of Mortgages and Markets
T
he tumult in the mort-
gage markets is on the
minds of everyone these
days. It’s certainly on the minds
of all of us here in the Federal
Reserve System.  
Responding to the recent
uptick in mortgage foreclosures
and delinquencies is a priority
for all of the Federal Reserve
banks. One way we can do that 
is by helping policymakers, jour-
nalists, and business leaders 
put those trends into perspective. 
The truth is that the vast majority of homeowners have
been able to make their monthly home payments on time,
including many that hold what are commonly known as sub-
prime mortgages. Many foreclosures are concentrated in
specific regions, and significant portions of those were the
product of risky investments made for speculative purposes.  
It’s also important to recognize that not all foreclosures
can or should be avoided. For a variety of reasons, some indi-
viduals end up with homes and mortgages that turn out to
be unsustainably large relative to their current financial
resources and their expected future earnings.
Yet it’s hard to overstate how devastating losing a home
can be to a family that was simply pursuing the dream of 
sustainable home ownership. Thus, the Richmond Fed has
teamed up with the other banks of the Federal Reserve
System to embark on the Homeownership and Mortgage
Initiative. 
One of our tasks in this Initiative is to lead an outreach
effort that can help prevent unnecessary foreclosures. Our
Community Affairs Office is collaborating with state
finance housing agencies, financial institutions, and 
nonprofits to provide foreclosure prevention training 
to Fifth District housing counselors. Our outreach efforts
have already contributed to the creation of a foreclosure
prevention task force in South Carolina and a 24-hour coun-
seling hotline for North Carolina residents at risk of losing
their homes.
The widespread attention to home mortgage delinquen-
cies has given rise to a push for new policy responses from
state legislatures and Congress. The risk with such 
responses, however, is that the policy outcomes may be too
hasty and based on uninformed perceptions instead of 
hard facts.     
So, another element of the Richmond Fed’s contribution
to this effort is our research capability. In an effort to pro-
vide financial institutions and policymakers the detailed
analysis that can help craft evidence-based policy solutions,
PRESIDENT’SMESSAGE
we have taken the lead on coordinating a working group
consisting of some of the System’s top economists and 
community development experts. Their task is to prepare
an overview of the current state of knowledge about housing
and mortgage markets. The System will then conduct 
further research to fill the analytical gaps and better under-
stand the effects of foreclosures on neighborhoods.
The Richmond Fed is also distributing mortgage data
and providing analysis to help Fifth District communities
identify where foreclosure “hotspots” exist and convening
discussions with policymakers and practitioners to under-
stand the underlying causes of foreclosures. In the first
quarter of 2008, we have made presentations in the District
of Columbia, Virginia, and North Carolina. 
We are also taking part in a process that will review and
propose updates to the Truth in Lending Act and related
statutes. Our hope is to restore some of the underwriting
safeguards and disclosure standards that have been eroded
in recent years.
There is no question that the U.S. economy is going
through a period of adjustment which is quite uncomfort-
able for some. Yet it’s important to remember that a
competitive market economy is, over the long run, better
for everyone. The cover story on private equity funds in this
issue of Region Focus is a good reminder of that. For all the
bad press they’ve received over the past year, private equity
funds serve a very important function: They help make the
allocation of capital in the economy more efficient.  
By purchasing companies that are underperforming, 
private equity funds are able to enhance a firm’s productivity
through restructuring. And despite the coverage of the 
short-term layoffs that often occur after a private equity
takeover, what isn’t often reported is the large number 
of new jobs that are eventually created by the newly 
efficient firm. In short, private equity helps facilitate the
vibrant competition that is the key to innovation and healthy
economic growth.
 

President's message : Of mortgages and markets

http://www.richmondfed.org/publications/research/region_focus/2008/winter/pdf/presidents_message.pdf

President's message : Of mortgages and markets

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