From Diana at cnbc.com:
(S)everal speakers at the forum said several scary things about housing and foreclosures. Mark Zandi of Moody’s Economy.com is looking for a hybrid version of Fannie and Freddie, or a mortgage market more privatized but with government backing. He said that if the mortgage market were fully privatized, mortgage rates would go up at least one percentage point and home prices would drop ten percent.
Laurie Goodman of Amherst Mortgage Securities put up some truly scary charts about non-performing loans and, with a flurry of numbers I couldn’t follow, said that without government intervention about 11 million more borrowers could lose their homes.
“Equity is the single most important determinant of default, not unemployment,” declared Goodman. This as a new report from CoreLogic this morning showed home prices dipping over 5 percent nationally in December, year-over-year.
“The key thing for investors to look at right now is what’s going to open up for them, what part of the playing field is going to open up where they can actually step in and be part of the mortgage market again,” said Armando Falcon, chairman and CEO of Falcon Capital Advisors, on a bit of a brighter note. “And that’s clearly going to be for the jumbo prime mortgage sector.”
He said that if the mortgage market were fully privatized, mortgage rates would go up at least one percentage point and home prices would drop ten percent.
1 point? I find that wildly optimistic.
If we were talking about conforming loans with 20% down and traditional debt to income ratios of less than 30-35% I could see investors willing to loan money at 6%. It’s definitely better than most of the other yield options out there right now.
Unfortunately we don’t see a whole lot of conforming loans at the entry level. The under $400K market is still dominated with FHA minimal downs and all cash investors. It’s really only the high end that has buyers that meet traditional underwriting standards and those loans aren’t going to Fannie/Freddie anyways.
Investors aren’t going to give median $60K household incomes, $300K loans at 5%. Only the government is willing to take dumb risks like that.
I see at least 10% to 15 % drop before we start getting out of the hole.
“We need to wean the Housing Market off of government capital.”
Is that the Royal “We” or just the WL Ross perspective?
11 Million homes should be foreclosed then. Do the owner a favor and cut that boat anchor from around their necks.
Then give the banks their coup de grace before Bernanke gives us the inflationary noose.
No_Such_Reality speaks the truth, indeed.
“He said that if the mortgage market were fully privatized, mortgage rates would go up at least one percentage point and home prices would drop ten percent.”
Well boo-hoo-figgin’-hoo. Why should taxpayers be subsidizing buyers/builders at all? I’d say we had a serious mis-allocation of resources to the real estate sector over the last 10-20 years and now it has ruined our banks.