Some Institutional Knowledge

Tomasz Piskorski and Amit Seru write,

the organizational capability of servicers could have played a very important role in determining the rate of modifications and foreclosures during a financial crisis — and such capability takes a long time to build.

The policy wonks thought that they could implement a mortgage refinance program just by snapping their fingers. In real organizations, planning, testing, and training are necessary.

I could have warned policy makers about this (indeed, I did, at a Congressional hearing). In my forthcoming online housing course, I plan to discuss the business processes involved in mortgage lending. I think that this is important information for policy makers to have. However, you will not see academic economists interested in these sorts of details. Piskorski and Seru seem to have stumbled onto reality by way of the data ex post, rather than through industry experience. This puts them way ahead of folks like Joe Stiglitz and Martin Feldstein, who style themselves as experts on housing finance but who I regard as ignoramuses on the topic.

At best, I hope to interest some mid-level government staffers and research assistants in my course. If they can communicate up to the policy makers, maybe the ignoramuses will do less damage.

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