Some Want More Government in Housing

Apparently there is something addictive in the milk dispensed from the federal teat. That’s the only explanation I can come up with for three supposedly private enterprise sorts of organizations arguing in favor of continued and yes, even more federal support for Fannie (FNM) and Freddie (FRE).

At a hearing planned this afternoon before the House subcommittee on government-sponsored enterprises representatives from the Mortgage Bankers Association, National Association of Realtors and National Association of Home Builders are scheduled to make statements in support of government support of the GSE’s.

According to HousingWire, Michael Berman of the Mortgage Bankers Association recommends:

“… explicit guarantees against mortgage investment-related credit risks, the cost of which can be offset by risk-based premiums paid by the investors. He calls for increased private investor participation in the secondary markets to complement the limited government support.”

Frances Martinez of the National Association of Realtors wants more GSE’s, especially one to bailout the jumbo mortgage market:

“For homeowners needing to refinance to a more reasonable mortgage product, the lack of liquidity is all but forcing many homeowners into foreclosure or short sale, which continues to place severe downward pressure on housing and the economy,” Myers says.

Not only will the GSEs need government support going forward, but entities or facilities should be established to provide liquidity in the jumbo and commercial mortgage markets to solve this liquidity issue, Myers adds.

Joe Robson of the National Association of Home Builders wants much more:

Chairman of the National Association of Home Builders, Joe Robson, also appears before the subcommittee today to testify that the affordable housing mission must continue with federal government backing, as the private sector can’t be counted on to maintain affordable housing credit, according to prepared remarks. Robson says the GSEs, responding to the economic contraction, tightened underwriting standards perhaps too much and must be reigned in if credit will continue flowing.

“We believe that the actions of the enterprises have forced the pendulum to swing too far, and, as a result, viable buyers are being denied credit,” he says. “While the enterprises must operate in a safe and sound manner, beyond a point, such self-selecting measures become too restrictive.”

I believe that sometime around the end of September there is a deadline that calls for some resolution of the status of Fannie and Freddie. Currently they exist is some sort of altered state. The government owns 79.9% of each but in fact acts as the owner of the companies. Substantial future advances are required to keep them afloat. Neither fish nor fowl they drift along doing the bidding of the Obama administration with little transparency or accountability.

A very important point to keep in mind is that who ever controls the means of financing real estate, essentially controls real estate. The life blood of the industry is debt. Effectively these representatives of private enterprise are proposing the furtherance of a system that will make them servants of the federal government. Short term it might benefit their interests but in the long term they’ll come to know the feel of the whip.

Before they make their pitches for more government they might want to talk to Jamie Dimon or Lloyd Blankfein or any of the other bank CEO’s who have seen the down-side of too much government help. There’s a reason that these guys are moving heaven and earth to get as far away from the government as possible. The rules have changed. Government now extracts much more for its subsidies. You may not like price you’re going to pay.

About Tom Lindmark 401 Articles

I’m not sure that credentials mean much when it comes to writing about things but people seem to want to see them, so briefly here are mine. I have an undergraduate degree in economics from an undistinguished Midwestern university and masters in international business from an equally undistinguished Southwestern University. I spent a number of years working for large banks lending to lots of different industries. For the past few years, I’ve been engaged in real estate finance – primarily for commercial projects. Like a lot of other finance guys, I’m looking for a job at this point in time.

Given all of that, I suggest that you take what I write with the appropriate grain of salt. I try and figure out what’s behind the news but suspect that I’m often delusional. Nevertheless, I keep throwing things out there and occasionally it sticks. I do read the comments that readers leave and to the extent I can reply to them. I also reply to all emails so feel free to contact me if you want to discuss something at more length. Oh, I also have a very thick skin, so if you disagree feel free to say so.

Enjoy what I write and let me know when I’m off base – I probably won’t agree with you but don’t be shy.

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