While there is some very irresponsible reporting taking place in newspapers, on television, and especially on-line regarding the state of the housing industry and mortgage related problems, the ratings and ad-sales seekers may actually be helping matters.
The “sky-is-falling” reporting may be enough to excite voters to contact legislators, who may in turn begin to exert enough pressure on the Administration and the Federal Reserve to make the interest rate and monetary policy changes needed to right the lending industry before it leads into a recession.
We are receiving emails from buyers that are, “going to wait until the bottom falls out” before buying, and sellers wondering if anyone that wants their home will be able to obtain a mortgage. While the buyers are not being realistic relative to our local market, sellers have legitimate concerns. The fact that borrowers can today obtain “conventional ‘conforming’ mortgages”, those that are less than $417,000 with minimum 20% down, is no consolation to local sellers priced above $500,000. Jumbo loans have to be available at reasonable rates. According to the people that I have talked to, the best way to accomplish this is for the conforming loan limit for loans purchased by FNMA [“Fannie Mae”] and FHLMC [“Freddie Mac”] is to raise the conforming mile from $417,000 to $650,000 or $700,000. It was disappointing that the summit meeting between Fed Chief Ben Bernanke, Treasury Secretary Herb Paulson, and Senate Banking Committee Chairman Chris Dodd did not yield the needed increase in conforming loan limits. Related stories indicate that President Bush is generally in denial that there exists a credit problem in the mortgage industry. We hope that view changes sooner than later.
For coverage of the meeting by Forbes.com and some good related links check out Senator Chris Dodd .
For opinions from the respective leaders of Fannie Mae and Freddie Mac use these links: Freddie Mac Chariman and CEO, Fannie Mae President and CEO Daniel Mudd.
While their positions are predictably conservative, a little reading between the lines reveals that both are accutely aware there are problems that they will be expected to solve.
Fannie Mae and Freddie Mac make sub-prime loans. But they did not make the loans that have created the spate of foreclosures. Those loans were created by hedge funds seeking to meet demand from largely foreign investors for higher return investments backed by mortgage securities. The President of Fannie Mae does a good job of explaining how these hybrid loans emerged, while at he same time deflecting blame in his statement to the U.S. House Committee on Finanacial Services.
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