We often talk about the private sector in real estate, but the real estate industry is now completely in the hands of the Federal Government.
A new report shows that 96.5 percent of all home loans in the first quarter were backed by a Federal Government entity.
That means 3.5 percent of the mortgage market is outside of the governments lending authority.
That my friends is government control.
From this time forward rates will be at the whim of the politicians. Lending decisions can be determined by those in power. It will not be one off’s or overt, but the powers that be will be able to determine how the housing market will go.
Government-related entities backed 96.5% of all home loans during the first quarter, up from 90% in 2009, according to Inside Mortgage Finance. The increase was driven by a jump in the share of loans backed by Fannie Mae and Freddie Mac, the government-owned housing-finance giants.
By providing a steady source of liquidity to the mortgage market, the government has helped housing markets to stabilize. However, “Fannie and Freddie have to get smaller and less relevant in order to revamp them, and instead, every day they’re getting bigger and bigger and bigger,” said Paul Bossidy, chief executive of Clayton Holdings LLC, a mortgage analytics firm. via WSJ
I do have one aside to this, and it is an important point. Our government is in the process of taking on historic debts. They are also underwriting the mortgage industry that exposes them to an even larger potential risk in the case of another downturn.
We have to be honest and recognize that when the lending power of the government starts to decrease and the ability to subsidize the lending industry as it has in the past couple of years goes away, the risk to the housing market will increase.
I am not worried about today or tomorrow, my concern stretches out into the next couple of decades. The time where our children and grandchildren are going to be looking at housing. There is a very good chance that housing will depreciate in that window if we do not decouple housing values to governmental backing of the markets.
{ 6 comments… read them below or add one }
Wow do I feel this one. I’ve got a completed business plan, an offering memorandom and a servicing and pooling agreement ready to go.
We must go private again consistently and steady. Mortgages started as a long term obligation. Underwriting to the long term providing cash flow for a secondary market makes the most sense. We need to separate the mortgage note market from the bond market.
I am proposing steady cash flow from mortgage notes with extremely low prepayment incidence. If the private investors want to securitze further into a riskier system, then they can do just that. The key piece is a performing note. We have structured underwriting guidelines to service today’s true mortgage market (the consumer). Check out my blog. I agree with this writer wholeheartidly.
What we need to see more of is private lending institutions like those used in hard money deals now. Pools of private capital can be the new mechanism for mortgage financing in the future. Take government and banks out of the picture.
>>>>>They are also underwriting the mortgage industry that exposes them to an even larger potential risk in the case of another downturn….
With FULL documentation going on for at least the last two years this is QUITE unlikely. Your fear-mongering in hugely overblown.
>>>>>> am not worried about today or tomorrow, my concern stretches out into the next couple of decades. The time where our children and grandchildren are going to be looking at housing.
You seriously believe a house 20 years from now might be worth LESS than today’s value? Are you on crack?
Eddie
What my concern is that in 10 years we will have 20 trillion in debt, in 20 years most states will be buried under a mountain of pension obligations that have not adequately provided for. There will be the social security and medicare obligations that will be overwhelming the government, and to that a tax burden that will have to be high enough to cover these obligations. Ownership of housing is going to be a struggle for a large proportion of the population.
I am thinking on a macro level of which housing is just a part of the equation. Our Federal Government keeps biting off more than it can chew, including housing. Oh, and you seem to forget that FHA is still writing 3.5 percent down loans.
The second paragraph in this blog is quite alarming! The federal government seems to have their hands in everything. Can the government afford to take on more debt? It seems that we’ll be a few Trillion in debt in no time. Even if the solution is print more money, we, the American public will still be forced with higher taxes paying back the Fed in Interest rates. It’s seems like a never-ending cycle!
I am not so sure this is new news. The GSE’s guaranteed 60% of the mortgages before the bubble burst; then, the private mortgage companies dropped out of the market. That is where we are today; the GSE’s probably guaranteed fewer mortgages than in 2005. The mortgages issued today are based on lower home prices and stricter underwriting standards. Odds are the mortgages will be fine. The major losses were caused when the homeowner loses his/her job and the house is worth 25% less than the mortgage. Will we see another 35% drop in housing prices; probably not.