Op-ed by Joel Singer
RISMEDIA, Dec. 5, 2008-As homeowners and home buyers struggle through today’s tumultuous housing market, government support for the mortgage market is needed, now more than ever, to take the lead in stabilizing the turbulence of this market.
This is particularly true given the apparent demise of the Government-Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. Unlike private lenders who have all but abandoned the nation’s housing markets, now and historically, the GSEs have stepped up to become the only reliable source of funding for home loans.
Even with enormous amounts of fresh capital, the surviving private mortgage conduits have totally failed to provide any meaningful flows of jumbo mortgages-the results have been record spreads to the treasury rates and rationed or unavailable loans. Fortunately, despite their financial difficulties and an antagonistic administration, Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA) are still providing mortgages, and now account for an unprecedented proportion of home loans in today’s market.
Going forward, the role of such government-supported mortgage entities will be critical. If in the past, Fannie and Freddie’s role was muted due to their propensity to help lenders at the expense of borrowers, they still always made a market and acted as a counter-cyclical weight to housing downturns. The successor to today’s GSEs must be successfully positioned to fulfill this role as well.
Some argue that GSEs, or any government support for housing, poses too great a risk to the overall economy. Certainly, the massive leverage of the recent past, when coupled with unsafe instruments and totally insufficient underwriting, cannot be condoned. Yet, it is also clear that the growth in homeownership opportunities for millions of American families were a direct outgrowth of the strength of the GSEs.
The new entities need to avoid the mistakes of the recent past, yet continue to focus on the mission of creating homeownership opportunities, particularly for the underserved and for those aspiring to purchase their first home. Simply put, the successors to Fannie and Freddie need to focus on originating affordable and safe purchase money loans and steer clear of complex exotic capital instruments. Any subprime lending must be accompanied by responsible, realistic underwriting and clear consumer understanding.
The basic question is, where would the economy be if there was an even more restricted supply of capital for today’s housing market? Ask any Realtor or real estate professional and they will tell you that buyers today have a tremendous opportunity to find and purchase the right home, yet their only realistic hope for financing is through a GSE- or an FHA-insured loan.
Without GSEs, today’s housing market woes would be amplified several times over and would stretch into the foreseeable future. The critical issue now is how the GSEs are restructured. Our greatest challenge is to ensure the availability of mortgage capital.
We are optimistic that, with the assistance and support of their new regulator and the U.S. government, a viable successor to Fannie and Freddie will emerge from these trying times stronger than ever.
Joel Singer is the executive vice president of the California Association of REALTORS®.
