EDIT: The Fannie/Freddie overhaul got rolling yesterday, and hopefully they’ll get the answer right – leave loan guarantees in the hands of the private mortgage insurance industry. The new FHA model, where they are ranking the risk based on the borrower’s credit score and amount of down payment (the more security, the lower the mortgage insurance premium) is what PMI companies do – just let them insure the loans, and pass along the risk premium to the borrowers, not the taxpayers.
From Bloomberg – they didn’t allow embedding of their video, here is link to Berman’s interview, who says the overhaul is gaining “traction”:
http://www.youtube.com/watch?v=A8CLV4i5Xds
The Obama administration, looking to overhaul the U.S. mortgage-finance system, gathered support from lenders and the real estate industry for reducing, without ending, the government’s role in insuring loans. A limited government backstop “has a lot of traction,” said Michael Berman, chairman-elect of the Mortgage Bankers Association, in a Bloomberg Television interview after a Treasury Department conference in Washington to discuss proposals.
The Obama administration is seeking advice on how to rebuild a system at the center of the 2008 credit crisis. Some Republicans have sought to abolish Fannie Mae and Freddie Mac, the main sources of U.S. mortgage financing. Yesterday, Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said the U.S. should consider “full nationalization” of the system.
“To suggest that there’s a large place for private financing in the future of housing finance is unrealistic,” Gross said at the meeting. “Government is part of our future. We need a government balance sheet. To suggest that the private market come back in is simply impractical. It won’t work.”
Fannie Mae, based in Washington, and Freddie Mac of McLean, Virginia, have drawn almost $150 billion in Treasury aid since September 2008, when they were seized by the government amid soaring losses on mortgage investments. The U.S. has promised unlimited support for the two companies. Including Ginnie Mae, the government insured almost 97 percent of U.S. mortgages in 2009, according to Inside Mortgage Finance.
“There is a strong case to be made for a carefully designed guarantee in a reformed system,” aimed at providing access to mortgages, even during economic slumps, Treasury Secretary Timothy Geithner said. “The challenge is to make sure that any government guarantee is priced to cover the risk of losses and structured to minimize taxpayer exposure.”
“Government is part of our future. We need a government balance sheet. To suggest that the private market come back in is simply impractical. It won’t work.”
Don’t worry children. Government will control (scratch that) I mean save you.
Gross is highly accurate in his forecasts (how else do you become the world’s largest bond fund manager) and beyond respectable in his industry.
If you look at it through his prizm, heavy gov backing makes his product, bond trading, much more predictable and profitable given their size/strength/power.
He is just speaking his own book…but aren’t we all (renters wanting prices to fall, borrowers wanting gov invervention, agents wanting supply to sell, etc)
Bill Gross seemed to be asking for lower interest rates (which would benefit his bond portfolio?)
If without government loan backing home mortgagees are required to put down more money on homes, homes would sell for less. With govt backing and less down payment needed, they sell for more. If interest rates were higher, homes would sell for less. When interests rates are low, they sell for more. It will all work out fine if the government eases out of the mortgage business.
All subsidies do is distort the market. Do-gooder motivated subsidies distort the market even more – and both lead to ruin.
Where’s Joseph McCarthy when you need him?
JtR- Calculated Risk did a posting on your “Comp Killer”
I keep wanting to call PIMCO “PIMPCO”. You know, the authority on hoes.
Link.
The first 2/3rds of the comment thread on that one is worth a look…
If you think Bill Gross is making any sense, please watch;
http://www.youtube.com/watch?v=w0_6hpTzE3Y