The Mortgage Full MontyJanuary 05, 2010 Posted by: Joe Morgan, CFA
When you're chewing on life's gristle
Don't grumble, give a whistle
And this'll help things turn out for the best ...
And ... always look on the bright side of life
- Eric Idle (Monty Python)
At 11:30 a.m. EST on Christmas Eve, the U.S. Department of the Treasury announced a handful of significant changes to its support of those venerable twins: Fannie Mae and Freddie Mac. Most significant was an unveiling of its potential equity injections for the next three years.
Mortgage traders and analysts alike scrambled for the next several days to interpret exactly what this means for the secondary mortgage market, but in the end little actual market reaction was seen. Instead the move was seen — as all previous moves to shore up the twins — as further indication the government will not allow for a default on their debt. No big surprise there.
But now that the folks keyed in on the short-term view have settled their stomachs, focus is turning on longer-term implications. In particular, just when will we have a private sector mortgage market once again?
When the President submits his budget recommendations in February, he plans to include specific suggestions about what to do with the twins long-term. I have been hoping this will finally kick off a serious debate — both in Congress and in the public — that would lead quickly to a resolution of this roadblock. Instead, the Christmas Eve gift we received could indicate we have much longer to go.
In this column, in my regular speeches, in client presentations and in my conversations with anyone who will listen, I have preached for the last year and a half that the quickest route to economic recovery drives right through the mortgage market. We only need answer a few, but admittedly significant, questions regarding government support for the housing sector.
Once the uncertainty recedes about where government will play, private lenders will reemerge, which will create a stable environment for homebuyers along with lower interest rates. This is all we really need to give the consumer courage to reenter the malls and bring strength...Read More