Andrew Jetter, president and CEO of the Federal Home Loan Bank of Topeka, presented the 2008 Chandler Lecture at the Kansas University Lied Center on Tuesday. Jetter addressed the recent mortgage crisis and possible actions to take in the future, but said Midwestern banks had largely avoided the subprime meltdown.

Despite the national economic downturn, the majority of Kansas’ community banks are in good shape and willing to loan money to qualifying businesses and individuals, a Topeka banking official said on Tuesday.

At the crux of the economic troubles are the toxic subprime mortgages resulting from adjustable rate loans, many offered by independent mortgage brokers, said Andrew Jetter, president and chief executive of the Federal Home Loan Bank in Topeka.

Moreover, those bad mortgages were then sold as complex securities to Wall Street financial firms, he said. Some “financial engineering” allowed those securities to look like they were based on safe loans and even earned them high credit ratings, Jetter said.

“By and large community banks have had little or no involvement in that at all,” Jetter said.

Jetter spoke to the news media prior to delivering the 2008 Chandler Lecture in Kansas University’s Lied Center. His speech was titled “Looking Ahead: The Future of Housing Finance In America.”

There were many factors involved in the mortgage and economic crises the country now faces, Jetter said. Housing prices skyrocketed prior to 2003, leading to more home buying by those who expected prices to continue to climb and hoping to make money off their investments.

“It started with optimism and moved to euphoria,” Jetter said.

Then the housing boom turned to bust.

Jetter said he doesn’t think the nation can regulate its way out of the current crisis. But additional regulation might be necessary in the future.

Adjustable rate mortgages were approved for people who could not make payments when the rates went up.

“That just doesn’t make any sense,” Jetter said.

Entities that made those loans were able to sell them to financial firms and thus had no more responsibility in collecting on them.

“They had no ‘skin in the game,'” Jetter said.

Consideration should be given to requiring mortgage brokers to be licensed just as real estate agents and some other professionals are, Jetter said. That would involve testing and continuing education.

Home loans to low-income borrowers are possible with prudent underwriting and appropriate education of the borrower, he said.

Moreover, simple disclosure forms should be presented to mortgage loan recipients that clearly outline information about the mortgage and its ramifications, Jetter said.