Archive for May, 2011
The U.S. mortgage market does not need Fannie Mae, Freddie Mac, nor a federal government guarantee on mortgage-backed securities, according to one industry expert set to testify before a House subcommittee Wednesday.
Anthony Sanders is professor of real estate finance at George Mason University just outside the nation's capital in Northern Virginia. He is an adamant supporter of winding down the government-sponsored enterprises.
In his testimony, released Tuesday, he claims very little will change if the mortgage giants disappear because the private market will fill that void.
"Fannie and Freddie will not be missed, nor will their absence make a difference to the housing market or the economy, particularly if taxpayers are no longer on the hook for further losses," Sanders plans to tell the Financial Services Subcommittee on Capital Markets and GSEs Wednesday.
Sanders will proffer seven options for one proposal to facilitate the transition of Fannie and Freddie from the most-dominant entities in the space — currently they own or back more than 90% of all mortgages — to bit players.
But before reformation can take hold, Sanders said the government needs to picture what the mortgage landscape will look like without these companies.
Rates would likely increase, Sanders claims, but would still remain at exceptionally low levels.
"We are way below the historical average for mortgage rates," he said on Fox Business News Tuesday morning, adding that he expects a jump of 50 to 100 basis points in rates after Fannie and Freddie are phased out. "That still puts rates at well-below historical norms."
Sanders also believes a market without Fannie and Freddie would produce a greater variety of mortgage products, something he feels would have a positive impact. Although some attest the 30-year fixed-rate mortgage is the crux of the mortgage market, Sanders says we don't need to rely on that type of mortgage solely.
"The 30-year, fixed-rate mortgage exposes lenders and investors to interest-rate risk (along with default risk)," Sanders said in his prepared testimony. "Other countries have a greater mix of variable-rate, short-term fixed-rate, and medium-term fixed-rate mortgages, which provides their economies (and taxpayers) with less interest-rate exposure. If the United States had a greater variety of mortgages, it would have a more robust housing-finance system."
Diversifying the mortgage market would not substantially reduce homeownership rates, Sanders says, which is against common consensus. The rate has bounced between 60% and 70% even with Fannie and Freddie around.
Sanders provided the following chart in his testimony, comprised from data from the Census Bureau. (Click to expand)
Eliminating the GSEs from the mortgage market would also promote safer lending and thereby safer investments for lenders, investors and mortgage insurers. This will indirectly attract new capital to the market and spur the private market, Sanders says.
"In other words, not much will change in a world without Fannie Mae and Freddie Mac, other than saving taxpayers hundreds of billions of dollars in the future," his testimony concludes.
Write to Christine Ricciardi.
Follow her on Twitter @HWnewbieCR.
When the Senate goes on recess at the end of this week, President Obama should appoint Elizabeth Warren to direct the Consumer Financial Protection Bureau.
By making a recess appointment, the president can name the best qualified leader to head the new agency, while demonstrating he’s willing to stand up to Republican obstruction and Wall Street pressure.
He’ll earn plaudits not only from the base of the Democratic Party that adores Warren but also from independent voters, who will be thankful for an advocate for consumers willing to stand up to the Wall Street lobby.
The top 10 metro areas with residential properties at risk of major damage in a storm surge reveals risk exposure at more than $300 billion.
Long Island represents nearly one third of the total exposure with $99 billion in residential property at risk of damage, according to the 2011 Storm Surge report from CoreLogic.
The island jutting east from Manhattan encompasses the New York city boroughs of Brooklyn and Queens, as well as suburban Suffolk and Nassau counties.
CoreLogic offers a flood monitoring service that allows lenders and insurance companies to assess the risk of damage to properties in case of a storm surge. The Federal Emergency Management Agency flood zone information does not take into account the impact of hurricane force winds pushing walls of water inland.
"Important to note is that in many cases, homes exposed to potential storm-surge inundation are located outside of a defined FEMA flood zone," the CoreLogic report states.
New Orleans, the city decimated by Hurricane Katrina, dropped significantly on the list, which is now in its second year. New Orleans now ranks fourth with $39 billion in risk exposure. (The methodology for 2011 was re-calibrated so correlations to the 2010 list are not direct comparisons.)
"Now that the Army Corps of Engineers has completed raising the area levees, rebuilding flood walls and creating a massive Lake Borgne Surge Barrier to provide a greater level of protection against hurricane storm-surge damage, many of the properties previously designated as in a high-risk surge zone have a significantly lower chance of exposure to property destruction," the report states.
In Long Island, as well as other metro areas high on the list, no such measures are being considered.
The Miami-Palm Beach region with $44.9 billion of exposure is in the second spot, followed by Virginia Beach with $44.6 billion of exposure.
However, it is important to note the risk assessment is based on property values. In the CoreLogic chart below both Long Island and New Orleans show a similar amount of properties at risk of storm surge damage. However, in Long Island, homes are worth more. (Click on chart to expand.)
Follow him on Twitter @JacobGaffney.
