Cart (0)
business newsHousing Bailout Masquerades as Stimulus
Fannie and Freddie asked to save the mortgage market.
PRINT
 |
|
Only the most Pollyannaish would argue that mailing checks to the spending vacuum that is the American consumer is an effective way to bolster the economy, so the true motivation for the unusually quick congressional action is for Fannie and Freddie to step in and support housing values.
The implicit government guarantee these companies carry has allowed them to be the sole source of liquidity since the secondary market for mortgages seized up last summer. However, even though Fannie and Freddie control the market for prime mortgages, they are unable to buy loans with a face value greater than $417,000.
High home prices and a stalled jumbo loan market mean potential buyers in areas with the fastest home price depreciation like California, Arizona, Nevada and Florida can barely find a loan. Combined with rampant speculation and exotic mortgages, illiquidity in the market for big loans has exacerbated the home price decline.
Even if expanding the reach of these institutions does jumpstart the market, its effects may not be as far-reaching as regulators hope. Fannie and Freddie's underwriting guidelines are tighter than most private lenders, so borrowers must have good credit and post sizable down payments to qualify.
At best, Congress's ruse will provide fodder for the November election as each party stakes its claim as savior of the American economy. At worst, by delaying the inevitable Washington has increased the severity of the eventual day of reckoning.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
