New Housing Finance Ideas…….Can It Work?

Posted By on August 23, 2010

Let’s keep this in mind…..Quoting PIMCO’s Bill Gross on real estate mortgages, Fannie Mae and Freddie Mac….”To suggest the private market can come back in and take the place [of the government] is simply impractical. It won’t work”.

Sources say the Obama administration is floating the idea  that any federal backing of mortgages be paid for through fees on the lending industry. 

Other proposals have been floated by two trade groups, the Financial Services Roundtable and the Mortgage Bankers Association.  They think new private-sector entities could be created to securitize and insure mortgages, and would then pay a fee into a government-insurance fund.

Researchers at the New York Federal Reserve Bank, writing on their own behalf, have proposed creating lender-owned cooperatives that would replace Fannie and Freddie. Private lenders would pay into a “mutualized loss pool” to provide guarantees for mortgage-backed securities, and members would also pay a reinsurance fee to the government for a separate fund to backstop additional losses.

Interestingly, mortgages were once funded primarily through the banking system. When the new world of financal engineering took place, it created massive securitizations and that fueled the growth of the nation’s $10 trillion mortgage market.  In the end it dwarfed the capacity of the nation’s banking system to fund loans.  The rest is history!

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