We all had hoped that the news of the pending mortgage crisis was just a lot of media hype, but alas it is very real and very much an issue we must all contend with. It’s about time the government stepped in and helped this unraveling industry out!!
This week there finally appears to be a bit of relief. The Office of Federal Housing Enterprise Oversight (OFHEO), otherwise known as the group tasked with keeping Fannie Mae and Freddie Mac in line, announced that there would be new flexibility allowed in managing their mortgage portfolios - flexability is the key word here and the following are a few highlights to what kinds of changes have happened and what further changes we can expect:
The Fed has cut the federal funds rate for the first time in fours years with a 50 basis point reduction.
The new “flexibility” for Fannie-Mae and Freddie-Mac will allow them the ability to purchase an additional $20 billion in sub-prime mortgages.
The House has passed an FHA modernization bill that is very radical in change - raising the limit on loans eligible for FHA backing up to as much as $729,750 in high-cost areas - it will have a possitive affect on the San Diego real estate market - whether the Bush camp will approve it we shall see …
The Senate is working on a more “conservative” bill that will allow for lower down payments and boosting the FHA limits in high cost areas – proposing to keep the max amount at $417,000 with a lower down payment requirement of 1.5%.
Although the new changes are allowing for a bit of a relief in the mortgage industry, many critics say it is not enough and the government needs to be more aggressive with its assistance. Either way, there is now a bit of light at the end of the tunnel that change is happening and that help is finally beginning to appear!
Put together by Shawn McDonald.
3 responses so far ↓
1 market forces // Sep 23, 2007 at 11:02 am
Remember that government intervention makes sense largely only as a corrective measure when there are market failures. In this case, the “failure” is two-fold, neither of which is going to be effectively addressed by the interventions that are taking place.
Prices rose steeply in the early 00’s due to too easy credit, rising incomes, and optimism. This should never have happened, but the Fed opened the floodgates on money, and the White House and others were lax in their supervision of lending practices. Housing is now wildly out of sync with incomes, a condition that was always unsustainable, and that must inevitably lead to declining prices. The “best” that the government can give us now is a slower pace toward the inevitable. Which poison do you (and others in the real estate industry) prefer, short and sharp, or long and painful? The government is not going to help you, except possibly marginally, and can do so only by hurting others. Those who did not profit from the upswing are now being asked to bear the burden of the downswing. The dollar is being devalued to temporarily ease the reset pain of adjustable mortgages. That this is no long-term solution should be obvious by the fact that the rate on fixed-rate mortgages actually when up last week, after the 50 basis point cut by the Fed.
What the Fed, FHA and others are doing right now is at best temporary and creates other problems which are eroding the value of the currency, and ultimately making housing less affordable. This is not relief. This is the beginning of an inflationary period, with likely inflation and a week dollar. Who is celebrating the coming stagflation as their savior? No one with any sense. Sorry to be blunt, but an expert advising buyers or sellers that this is good news is either ignorant, or disingenuous.
Market forces.
2 Peter Toner // Sep 23, 2007 at 11:58 am
You make some good points “Market Forces” - when Government messes with market forces to help some part of the economy it will have it’s consequences.
An article on Wall Street Journal also weighs the issues and is worth reading:
http://www.realestatejournal.com/buysell/mortgages/20070920-kim.html
Peter Toner
3 Relief … or is it?? // Sep 27, 2007 at 5:34 pm
[...] We posted last week about how the Government plans to help the mortgage industry. [...]
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