New role for Boston Fed

Can the Federal Reserve Bank of Boston be relevant again in public debate over an economic problem that affects people from all walks of life?

It's been a long time since the Boston Fed placed itself very publicly in the middle of something like that, well over a decade. But the subprime mortgage fiasco, with all the rippling economic damage it can cause, is exactly the kind of issue the bank should jump all over.

Perhaps it will. Boston Fed president Eric Rosengren, in his first speech since getting the job this summer, did nothing but talk about how the subprime market went so wrong, how the world is reacting right now, and what can be done to reduce risks to everyone.

"Perhaps the most critical issue is that finance that supports responsible subprime lending continues, despite recent problems," Rosengren said in his speech yesterday in Portland, Maine. That's not a universally embraced point of view, but it's true.

The role of regional Fed banks in important economic issues like subprime mortgages is clear: They should be honest and thorough brokers of information and ideas for policy makers and the marketplace. At its heart, this is a public communications job.

The Boston Fed has a history in this role, which was embraced for many years by former presidents Frank Morris and Dick Syron. But the bank rarely took such a public position in big economic issues when it was run for more than a dozen years by Rosengren's predecessor, Kathy Minehan. Her friends point to other strengths, but this important function wasn't one of them.

Rosengren is an economist who did some of his best-known research on another credit crunch that occurred nearly 20 years ago. Most of his immediate ideas on limiting economic damage from today's subprime problem involve prodding banks to lend money when capital markets will not.

Clearly, he has been talking with New England bankers about their willingness to finance both homeowners and business customers in those situations, and he made pointed suggestions yesterday about who some of the best loan candidates might be.

Rosengren pointed out the most attractive home loan customers with a problem - people in need of jumbo mortgages who have seen rates go way up despite good credit histories, enough equity, and the ability to pay every month. The borrower isn't the problem, it's the market running away from jumbo mortgages as a product.

But Rosengren also talked about types of subprime mortgage borrowers who may be candidates for refinancing into more conventional loans by banks. Some are people with relatively high credit scores, borrowers who are making payments every month on old teaser loans with rates higher than current conventional alternatives, and others who have been in homes long enough to have gained significant equity.

Rosengren identified those categories of borrowers based on research into real estate records the Boston Fed launched months ago, beginning with a limited sample from Middlesex County. That led to efforts to collect more records for research, and the Boston Fed's database of Massachusetts real estate activity now covers more than 19 million events going back years. The bank is trying to collect similar data from other states.

Boston Fed economists are mining that data and may publish new regional real estate research before year-end. That may or may not produce something useful, but it's exactly what the bank should be trying to do.

The people trying to deal with the subprime mess, from legislators and policy makers to individual homeowners, need reliable places to go for good information and ideas. In that kind of public role, the Boston Fed has a chance to be relevant again.

BOSTON CAPITAL BLOG
Steven Syre is a Globe columnist. Read his daily blog at boston.com/business. He can be reached at syre@globe.com.