Mortgage market socialism and the troubles ahead
Don’t worry, this is not a crackpot screed about the Obama Administration secretly plotting to take over another key sector of the economy.
Rather, many of the changes that have created a government dominated mortgage market began with former President George W. Bush.
But the collapse of the housing market and the economic emergency it spawned has thrust the federal government into the role as the nation’s mortgage banker.
One stat that floored me: nearly 90 percent of all mortgages being written today are backed by U.S. taxpayers. That’s up from 30 percent just four years ago.
Moreover, Freddie Mac and Fannie Mae, both taken over by the federal government in a bid to prevent further damage to the housing market, now own or back more than $5 trillion in mortgages.
The Federal Reserve, in turn, has also provided a major prop to the mortgage market, buying up hundreds of billions in mortgages.
While this intervention was clearly needed to prevent the housing market from freezing up altogether, unwinding this huge and ongoing subsidy is likely to prove tricky.
Moreover, a new set of costly problems looms on the horizon, experts warn.
Subprime loans are a thing of the past and a third of all borrowers who got mortgages during the boom would be rejected today.
But even the much more cautious and theoretically safer mortgages being written now are starting to go bad at a troubling rate amid the economic downturn.
Overall, delinquency rates on prime mortgages have been rising as homeowners lose their jobs, even as foreclosures on subprime loans start to fall.
With bad loans on the rise, both Fannie and Freddie have lost $150 billion over the past 18 months, the article notes.
The Federal Housing Administration faces a similar problem, with 8 percent of its loans either 30 days late or facing foreclosure.
Given the fact that mortgage lending is effectively a government enterprise now, all these losses could amount to bad news for taxpayers across the country.
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If this author Scott Voorhis were a brewer, he would call this article "Breezy/Easy/Light"!
I say just hit ctrl-alt-delete. Forgive all mortgage debt, monetize the investments, destroy fannie/freddie, and then just let the market find new price levels. Supporting bad loans wont help. Letting prices collapse to help non-homeowers punnishes those who are making prudent payments. Just hit ctrl-alt-delete and then get government out of housing as fast as possible.
that's right FHA is now the sub-prime lender, with the taxpayers on the hook. This all part of the industry (banks and NAR) and government to have an "orderly unwinding" which is essentially an effort to allow the housing market to drift lower hopefully allowing a gradual adjustment to take place, rather than an outright, unabated crash, similar to trading stops in the equities market. Prices will collapse, but in a more "controlled" decline. How is this being done?
Incenting falling knife catchers with the 8k cash for shacks, having FHA act
as a pseudo sub-prime lender, for people with very little equity and marginal credit, and lastly, but allowing banks to delay "marking to market"
on their toxic assets. I am convinced the government knows this is a losing battle, but they have to put on a good show. The bottom line is that there is no way in the world to turn a few trillion dollars of bad loans into good ones.
you dropped a percentage above, but yeah, if you look at it, the housing market is being completely propped up by the govt. And the FHA stuff alone is really scary.
Freddie and Fanny are bankrupt by any reasonable financial metric.
What a mess
"One stat that floored me: nearly 90 percent of all mortgages being written today are backed by U.S. taxpayers."
So that means 90% of bonuses and profits will go to US taxpayers, doesn't it?
I think the interesting part of this article is the 30% of boomtime borrowers would no longer qualify. I was chatting with someone the other day about Mass., and we were trying to decide what the housing recovery is going to look like if you assume a lower level of demand / available buyers due to
1. lack of qualification / credit due to tighter standards
2. lack of qualification / credit due to foreclosure
3. aging of Mass. population
4. decline in Mass. population due to emigration
5. lack of qualification / credit due to unemployment
Seems that a fair portion of those folks who drove up prices (artificially, since they couldn't actually afford to buy) will no longer be part of the buyer pool once the recovery does come around. That would seem to portend a less vigorous recovery than in the past, when the downturn was normally driven by unemployment rather than a temporary (and illusory) expansion of the pool of potential buyers.
That said, I am not sure if Mass. has a higher proportion of fiscally responsible folks who had the cash, but chose to sit on the sidelines as the peak was approaching, and since the fall. Not sure if these people might balance / replace the folks who now can no longer be considered potential buyers.
Thoughts?
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