The Government’s Role in the Housing Market
http://thedianerehmshow.org/shows/2011-02-10/government%E2%80%99s-role-housing-market
White House proposals for reducing the government’s role in the housing market: The future of mortgage giants Fannie Mae and Freddie Mac and what the changes could mean for home buyers and sellers.
Guests
Mark Zandi
chief economist of Moody's Analytics and author of "Financial Shock" and the forthcoming book, "Paying the Price."
Guy Cecala
Publisher of Inside Mortgage Finance Publications
Dina ElBoghdady
covers the real estate market for the Washington Post.
Michael Barr
professor at the University of Michigan Law School, Senior Fellow at the Center for American Progress, former Assistant Secretary for Financial Institutions at the U.S. Department of the Treasury, and a key architect of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Comments
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Ask Mark Zandi why he thinks banks are not being required to buy back loans sold to Fannie and Freddie through reps and warranties. I have read these could amount to more than $100 billion. Banks should, presumably, fulfill their contractual obligations
And, a comment: let's recall that there was NO explicit government guarantee of Fannie and Freddie before the 2008 crisis.
May we ask the discussants where they believe the huge supply of money came from that fueled the lighthearted lending practices that led up to the housing bubble and where that money is now?
Diane;
Will any of your guest dare to discuss the elephant in the room, Credit Derivatives!
These are the wagers between banks over the success or failure of their investments.
According to the Office of the Comptroller of the Currency’s Quarterly Report on Bank Trading and Derivatives Activities for the Second Quarter 2010 (most recent), the notional value of derivatives held by U.S. commercial banks is around $223.4 TRILLION.
Five banks account for 95% of this. Can you guess which five?
JP Morgan , Citibank, Bank of America, Goldman Sacks and HSBC.
Theses derivatives are tied to rising interest rates, if rates go up these banks are bankrupt.
I am an appraiser. Underwriting went to hell under Republican control!! Lenders cannot be trusted whatsoever to write good loans until they are foced to buy back a realistic portion of the problem ones- not convenient for Wall St. Many cu's still have under 1% default rates? Underwriting is hardly rocket science. Without gses or a replacement, home price declines will accelerate. The wealth effect for Americans will also be gone. Creative financing masked declining real wages. Lower ho rates- yes...no one out here on main street trusts any money center bank at this point. I encourage all of my consulting jobs to not buy until the gses are reorganized- free of lenders influence.
With regard to other models for the US to follow, what about Canada? The typical homeowner there has a mortgage amortized over 25-30 years, with interest rates updated every 5 years. That coupled with responsible criteria for granting the mortgage in the first place seems to work very well there. Why not here?
With respect to the preservation of the 30-year, fixed rate mortgage, would there be any merit to the idea of creating a tiered system whereby a borrower's rate would be determined by the amount of cash invested in a property. For example, someone who gave a down payment of 20% would have a higher 30-year fixed interest rate than a borrower who gave a 50% down payment. Would this approach mitigate the lender's risk with respect to market rate changes?
I question the entire premise of supporting the single-family housing market. The government, through its fiscal and monetary policy, steers its funds to places where supposedly they will benefit society. I don't think that single-family housing, in its current form of oversized homes in far-flung suburban tracts, can compete with health care, transportation, education, research, and industry support. In today's flat world where Americans are competing for jobs in a global market, single-family homes is not a beneficial place for our investment as a nation. After being built, they serve little purpose that can translate into improving the lot of this nation.
I see the investors who are buying these foreclosures in bulk doing carryback sales of their properties to bypass the banks. If I was a bank I would not like to see that.
GREAT topic but I didn't hear much variety of opinion.
I'm exceedingly critical of the notion that tax payers should underwrite mortgages. I'm exceedingly critical that mortgages can be securitized. Any institution making a loan should accept the risk: THAT'S THE BUSINESS THEY'RE IN! If they don't want to accept the risk, DON'T MAKE THE LOAN. If the loans are good, why would you want to sell them? If you think this would choke the economy, that's what we have now. The problem isn't that people can't get loans (NOW they can't), the problem is that housing costs too much (disparity in income). Rather than allowing the market to correct prices, the outrageous costs of housing (military "defense", medical treatment, etc.) are upheld by corruption in government and industry and by stupid Americans. Lives are being held hostage and the government allows this.
I sure hope the Republicans/conservatives write in to express their outrage over this socialist plot to take over Wall Street --- but of course they wont; they're the ones making money hand over fist. This Country isn't capitalist, its not even socialist, its characterized primarily by corruption.
Housing prices need to crash, banks need to be liquidated, government needs to regulate.
"PeterMelzer wrote:
May we ask the discussants where they believe the huge supply of money came from that fueled the lighthearted lending practices that led up to the housing bubble and where that money is now?
February 10, 2011 - 10:36 am"
Dear Pete:
The answers to your questions accounts for about 50% of the Economic chaos that Reagan / Bush caused.
After Reagan, lowered competition in some businesses and much lower taxes left obscene volumes of cash in the hands of Investors. The Bubbles were caused by Investors awash in Capital chasing too few investment opportunities.
I would point out that the housing bubble was preceeded by the refinancing boom, when huge portfolios of Mortgages were refinanced at lower rates accomplishing nothing but churning up the Mortgage business and lowering the general Real Estate ROI. Furthermore, lenders were pressing extra Cash on Borrowers up to 130 % of Valuation.
The "lighthearted lending practices that led up to the housing bubble", were the result of the same overcapitalization that put too much money in the hands of those unable to use it wisely.
Where is the money now?
That lost by those holding the bag when the bottom fell out, went to the Developers, Builders, Land Owners, Realtors, material suppliers, Originators and Mortgagees who, no doubt, spent their profits with gusto.
Monte Haun mchaun@hotmail.com
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