From USA Today
The Fed ends a two-day meeting on Wednesday with a policy statement and a news conference with Chair Janet Yellen.
Consumer prices last month posted their sharpest increase in 15 months as inflation continued a recent acceleration from unusually low levels. The consumer price index jumped 0.4% after rising 0.3% in April, the Labor Department said Tuesday. Economists had expected a 0.2% increase.
Over the past 12 months, consumer prices have increased 2.1%.
“The chances that (the Fed) will raise interest rates before the middle of next year are increasing,” economist Paul Dales of Capital Economics said in a research note Tuesday.
If inflation readings persist, it could also speed up the pace of Fed rate hikes . The Fed is on the lookout for rising prices, which hurts consumers buying power
“The stronger-than-expected rise also is supportive of our view that the Fed will move to raise rates in June 2015 and undertake a more normal tightening cycle than is currently being priced in by the market.”
Low borrowing costs have been a boon for the stock market, as it makes stocks more attractive than bonds and provides much-needed stimulus to the economy. On the flip side, stocks have historically struggled during periods when the Fed was “tightening” policy.
Posted by
Ty Laffoon
Tuesday, June 17, 2014
Tuesday, June 3, 2014
Get ready for America and Europe to drift apart.
By Alex Weber
When the governing council of the European Central Bank meets in Frankfurt on Thursday, it is widely expected to announce a loosening in policy – most likely a cut in both the refinancing and deposit rates. Two weeks later, the US Federal Reserve will probably respond to strengthening economic data by moving in the opposite direction, tapering the pace of quantitative easing for the fifth consecutive meeting. This is another sign of how monetary policy is diverging in the two largest economies, a trend that is set to shape funding markets for years to come.
In the US, output is set to rebound in the second quarter after having been disrupted by dismal weather in the first. And while price rises have been subdued so far, employment surveys suggest an emerging skills shortage and thus the potential for wage cost growth that could help lift inflation close to the Fed’s 2 per cent target. By any measure the labor market is tighter in America than in Europe, where the recovery remains weak and uneven despite buoyant financial markets. The gap between actual and potential output will barely shrink in the Eurozone this year, and unemployment will remain close to a record high.
Before long, these divergent fortunes are bound to lead to large differences in policy. In the US, interest rates could begin to rise in 2015. In Europe, they are likely to stay low for much longer.
One might expect that movements in financial markets would reflect these expectations. However, so far, by and large, they have not. The dollar has been ailing for months, defying analysts’ expectations that the currency would strengthen in anticipation of higher US interest rates. What is going on?The answer is that market expectations seem to count less than current conditions, which still support the euro. First, the high yields on government debt in countries such as Italy and Spain have made them an attractive investment for believers in the ECB’s pledge to do “whatever it takes” to save the euro. Second, America’s shrinking pension deficits may have stoked appetite among pension-fund managers to lock in profits and match liabilities, helping suppress long-term bond yields. And then there are the central banks. The Euro system's balance sheet has been shrinking for more than a year, as banks that borrowed from the central bank under the longer-term refinancing operation (LTRO) have repaid their debts early. Meanwhile, the Fed’s balance sheet is still growing, albeit at a reduced rate.
However, these factors are temporary. LTRO repayments are coming to an end, US quantitative easing will be completed by the end of the year, five-year government bond yields in Spain are already similar to those in America and long-dated US government bond yields are pricing in unrealistically low expectations of future economic growth. Diverging monetary policy will soon begin to have more impact.
To my mind, investors should prepare for more volatility this year. The degree of easing of US monetary policy has been exceptional. The tightening, when it begins, will also be unprecedented. The tightening has not yet begun – the Fed’s balance sheet is still expanding. I see significant potential for volatility and setbacks on financial markets over the next few quarters.
In particular, the story is not over for emerging-market countries that rely on cheap dollar funding. The recovery of their stock markets and currencies in the past months does not reflect improved economic fundamentals, but a better mood among investors. These countries are still vulnerable. When US interest rates begin to rise, these borrowers may be able to turn to euro-denominated debt as an alternative source of cheap financing. However, this at best delays adjustment; improving fundamentals remains urgent.
The Fed’s balance sheet, which was about half the size of the Euro system's going into the crisis, has now overtaken its European counterpart as a proportion of output. Emerging markets will not be the only ones to suffer when this trend goes into reverse. A tightening in US monetary policy always causes fallout. This time will be no different. In fact, it may be worse, since the tightening starts from extremely expansionary territory.
Ty Laffoon
Prime Mortgage Loans
San Diego , Ca.
Thursday, May 1, 2014
The homeownership society is clearly over. What are going to do about it?
By CNBC's Diana Olick.
The homeownership society is clearly over. Even as home prices soar and value returns to real estate, the one number that just keeps falling is the nation's homeownership rate. In the first quarter of this year, it fell below 65 percent for the first time since 1995. It now stands at 64.8 percent, according to the U.S. Census, down from a high of over 69 percent at the height of the last housing boom.
"Homeownership is one of the most important paths to the middle class for families. It's how folks put down roots, build wealth put kids through college, start businesses," said Shaun Donovan, secretary of Housing and Urban Development. "If there are people who are ready to buy a home, but who aren't getting access to credit, then we've got a problem, and that is what we are facing right now."
Donovan is looking for more swift action from lawmakers on Capitol Hill who are tackling a bill on housing finance reform this week. That bill also, Donovan stresses, includes access to more affordable rental housing.
Home sales were higher in 2013, but that was largely due to huge demand from individual and institutional investors on the low end of the market. Using all cash, they bought up swaths of single-family homes in the most distressed markets, pushing prices higher by double digits. They didn't leave much behind for regular, credit-dependent buyers.
The homeownership society is clearly over. Even as home prices soar and value returns to real estate, the one number that just keeps falling is the nation's homeownership rate. In the first quarter of this year, it fell below 65 percent for the first time since 1995. It now stands at 64.8 percent, according to the U.S. Census, down from a high of over 69 percent at the height of the last housing boom.
"Homeownership is one of the most important paths to the middle class for families. It's how folks put down roots, build wealth put kids through college, start businesses," said Shaun Donovan, secretary of Housing and Urban Development. "If there are people who are ready to buy a home, but who aren't getting access to credit, then we've got a problem, and that is what we are facing right now."
Donovan is looking for more swift action from lawmakers on Capitol Hill who are tackling a bill on housing finance reform this week. That bill also, Donovan stresses, includes access to more affordable rental housing.
Home sales were higher in 2013, but that was largely due to huge demand from individual and institutional investors on the low end of the market. Using all cash, they bought up swaths of single-family homes in the most distressed markets, pushing prices higher by double digits. They didn't leave much behind for regular, credit-dependent buyers.
Alex Slobodkin | E+ | Getty Images
"This institutional investor dynamic is a whole new era I think," said Robert Shiller, creator of the S&P/Case-Shiller Home Price Indices on CNBC's "Squawk Box" on Tuesday. "As institutional investors start to play in the single-family market, that just changes it fundamentally."
Read More Home prices gain in February, beat expectations: S&P/Case-Shiller
Home prices were up around 13 percent in February, according to Shiller's index, despite the fact that sales have been waning since last summer, when mortgage rates jumped higher.
Investors, having priced themselves out of several formerly hot markets, are now pulling back somewhat on purchases, leaving an historically short supply of lower-priced homes for a usually strong cohort, the first-time homebuyer.
With first-time buyers priced out of some homes and facing tougher credit standards and higher down payments, homeownership had nowhere to go but down. Household formation is also anemic. Just 423,000 households were formed in the year ended on March 31, and the vast majority of those were renter households. Normal formation is usually well over a million households a year.
"Household formation is critical for the housing recovery. With so many young people living with their parents or roommates during the recession, the housing recovery now depends on how quickly young adults re-enter the housing market," said Jed Kolko, chief economist at Trulia.
Read More Home sales finally thaw, but just slightly
Kolko says the census data may be undercounting formation, as job growth has picked up for young adults, but so many new renter households don't bode well for homeownership.
"Ironically, adding renter households could cause the homeownership rate to fall, even though these new rental households are a sign of recovery and will spur more construction starts," added Kolko.
Read More Home prices gain in February, beat expectations: S&P/Case-Shiller
Home prices were up around 13 percent in February, according to Shiller's index, despite the fact that sales have been waning since last summer, when mortgage rates jumped higher.
Investors, having priced themselves out of several formerly hot markets, are now pulling back somewhat on purchases, leaving an historically short supply of lower-priced homes for a usually strong cohort, the first-time homebuyer.
With first-time buyers priced out of some homes and facing tougher credit standards and higher down payments, homeownership had nowhere to go but down. Household formation is also anemic. Just 423,000 households were formed in the year ended on March 31, and the vast majority of those were renter households. Normal formation is usually well over a million households a year.
"Household formation is critical for the housing recovery. With so many young people living with their parents or roommates during the recession, the housing recovery now depends on how quickly young adults re-enter the housing market," said Jed Kolko, chief economist at Trulia.
Read More Home sales finally thaw, but just slightly
Kolko says the census data may be undercounting formation, as job growth has picked up for young adults, but so many new renter households don't bode well for homeownership.
"Ironically, adding renter households could cause the homeownership rate to fall, even though these new rental households are a sign of recovery and will spur more construction starts," added Kolko.
On the plus side, the trend will favor investors in rental housing.
"The increase in the share of households renting to a 19-year high in Q1, and the low supply of homes entering the rental market, look like boons for both rental value growth and multi-family homebuilding," noted analysts at Capital Economics, who predict the homeownership rate will bottom out at 64 percent.
Home prices are beginning to moderate, as a result of slightly more inventory coming to the market and lackluster sales, but price growth is still well above income growth, never mind rising mortgage rates.
Read MoreLargest US builder bets on 'bargain' homes
"We should look at smaller price increases therefore as a good thing, as these double-digit gains are just not sustainable and need to be priced more competitively in order to entice that family to buy their first home instead of continuing to rent it,
Call Prime Mortgage Loans for information on current lending programs 619-360-0396
"The increase in the share of households renting to a 19-year high in Q1, and the low supply of homes entering the rental market, look like boons for both rental value growth and multi-family homebuilding," noted analysts at Capital Economics, who predict the homeownership rate will bottom out at 64 percent.
Home prices are beginning to moderate, as a result of slightly more inventory coming to the market and lackluster sales, but price growth is still well above income growth, never mind rising mortgage rates.
Read MoreLargest US builder bets on 'bargain' homes
"We should look at smaller price increases therefore as a good thing, as these double-digit gains are just not sustainable and need to be priced more competitively in order to entice that family to buy their first home instead of continuing to rent it,
Call Prime Mortgage Loans for information on current lending programs 619-360-0396
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Why the Housing Market isn't as robust as it should be
5 hours ago
The weather is warming up, home prices are still strong, and more listings are coming onto the market. This should all be the perfect combination for a robust spring housing market, but it just isn't turning out that way. It has been a week of weak numbers, and analysts are now revising down their estimates for 2014.
"Several key metrics of housing activity have shown notable weakness in the first three months of the year," wrote analysts at Morgan Stanley who downgraded the range of full-year 2014 sales to 4.75 million to 5 million units, a reduction of as many as 1 million homes. "In our view, the rationale for the weakness comes from a combination of three factors — severe winter weather; a transition away from investors reliant on distressed and cash purchases to mortgage credit-dependent buyers; and affordability challenges for first-time home buyers."
Home prices were up around 13 percent in February, according to the S&P/Case-Shiller home price index, despite the fact that sales have been waning since last summer, when mortgage rates jumped. Investors, having priced themselves out of several formerly hot markets, are now pulling back somewhat on purchases, leaving an historically short supply of lower-priced homes for a usually strong cohort, the first-time homebuyer.
"This institutional investor dynamic is a whole new era I think," Robert Shiller, creator of the S&P/Case-Shiller Home Price Indices, said on CNBC's "Squawk Box" on Tuesday. "As institutional investors start to play in the single-family market, that just changes it fundamentally."
Regular, credit-dependent buyers are just not coming back to the market as fast as expected. In fact, the nation's home ownership rate fell to its lowest level in 19 years at 64.8 percent in the first quarter of this year, according to the U.S. Census. Household formation is also running at about half the rate it should be, given current demographics and pent-up demand.
"Household formation is critical for the housing recovery. With so many young people living with their parents or roommates during the recession, the housing recovery now depends on how quickly young adults re-enter the housing market," said Jed Kolko, chief economist at Trulia.
Credit, however, is still tight, and affordability weakening along with sales. Weekly mortgage applications plummeted to a four-year low last week; total applications fell 5.9 percent week-to-week on a seasonally adjusted basis, according to the Mortgage Bankers Association. Applications to purchase a home, which fell 4 percent this week from last week, are a clear and current indicator of the housing market's current state. These applications, which generally mirror pending home sales— signed contracts to purchase homes—are down 21 percent compared to the same week last year.
The number of signed contracts to buy existing homes were slightly higher in March from February, the National Association of Realtors reported this week, but analysts surveying activity on the ground have warned that April sales could be slower. The mortgage application numbers would appear to confirm that.
"Purchase application volume remains weak, despite other data which indicate that the overall pace of economic growth is picking up. The combination of higher rates, new regulations and tight inventory all are leading to a weaker spring market than we have seen in years," said Michael Fratantoni, the mortgage bankers' chief economist.
Read More Homeownership falls to 19-year low: Here's why
Inventory remains tight because builders are still operating at anemic volumes, while millions of home owners are trapped owing more on their mortgages than their homes are worth. Other homeowners don't have enough home equity to afford a move-up home. These potential sellers have no option but to sit the market out.
"All of our new households are renters and they aren't transitioning into ownership because of high prices in many metros, tight credit, high student debt and low rental affordability which makes it difficult to save for a down payment," said Stan Humphries, chief economist at Zillow (Z), a real estate website. "Over the past decade, the pace of rent increases has been double the growth in incomes. You don't have to be an economist to see a problem there."
While home prices are still at least 10 percent below their peak in 2006, the credit market today makes that price differential substantially larger. Home prices were able to soar to their 2006 highs because buyers didn't need much, if any, cash to buy a home. No-down-payment loans with short-term teaser rates made home purchases easy. Home prices were artificially inflated by cheap and easy credit. As we know, that model was unsustainable.
This article was forwarded by Ty Laffoon
Friday, April 25, 2014
Google Going Solar
(Marketwatch) Google and SunPower are creating a $250 million fund for buying residential rooftop solar systems, aimed to “make it easier for thousands of households across the U.S. to go solar,” Google said in a company blog post.
Google will invest $100 million, while SunPower will invest $150 million in the plan.
“Essentially, this is how it works: Using the fund, we buy the solar panel systems,” Google said in a blog post. “Then we lease them to homeowners at a cost that’s typically lower than their normal electricity bill. So by participating in this program, you don’t just help the environment—you can also save money.”
The company said the SunPower deal is Google’s 16th renewable energy investment and the third geared toward residential solar power systems. The technology giant has invested more than $1 billion in renewable projects throughout the world.
Google unveiled the SunPower deal at a time when some analysts are raising questions about the company’s expenses. Google has also been investing in major projects that could yield long-term benefits but involve huge capital allocations, such as its evolving superfast Internet system, Google Fiber.
“We believe the lack of clarity about the causes of the elevated capex levels and the potential for increased capex due to a large Google Fiber expansion are increasing the risks of owning Google stock.”
“Google is committed to disrupting categories.”
“Energy is one of them,” he told MarketWatch. “I think in the context of overall investments, this is pretty small. It’s also a way to Google to invest in moving a category forward, which is more of a market development spend as opposed to cap ex.”
Forward by Ty Laffoon
Monday, March 31, 2014
Yellen Talks : Now the Market Jumps!!
When Janet Yellen talks, investors normally listen and like what they hear, and push asset prices higher.
But that wasn’t the case on March 19, when the new Federal Reserve chair spooked markets during a press conference after suggesting that the central bank could start hiking short-term interest rates earlier than expected next year. Whether it was a gaffe or not, Yellen said the Fed could start hiking rates “six months” after the end of its bond-buying program, which raised the specter of rate hikes as early as April 2015, vs. late-2015 as Wall Street expected.
The Dow fell 114 points that day.
Fast-forward to Monday. At a speech in Chicago, Yellen reiterated that the Fed isn’t in a big hurry to take away the so-called “punch bowl.”
The Dow is up more than 110 points today. Forward by Ty Laffoon
Yellen stressed that the job market and economy still need Fed support. She reiterated that the Fed would continue to lend a hand by keeping rates low for a long time, despite fears to the contrary as the Fed dials back on its monthly bond purchases.
Yellen, in her own words:
Forward by Ty Laffoon
“I think this extraordinary commitment is still needed and will be for some time,” she wrote in her prepared speech. ”And I believe that view is widely shared by my fellow policymakers at the Fed.”
“Recent steps by the Fed to reduce the rate of new securities purchases,” she added, ”are not a lessening of this commitment, only a judgment that recent progress in the labor market means our aid for the recovery need not grow as quickly. Earlier this month, the Fed reiterated its overall commitment to maintain extraordinary support for the recovery for some time to come. This commitment is strong.”
Sent by Ty Laffoon
But that wasn’t the case on March 19, when the new Federal Reserve chair spooked markets during a press conference after suggesting that the central bank could start hiking short-term interest rates earlier than expected next year. Whether it was a gaffe or not, Yellen said the Fed could start hiking rates “six months” after the end of its bond-buying program, which raised the specter of rate hikes as early as April 2015, vs. late-2015 as Wall Street expected.
The Dow fell 114 points that day.
Fast-forward to Monday. At a speech in Chicago, Yellen reiterated that the Fed isn’t in a big hurry to take away the so-called “punch bowl.”
The Dow is up more than 110 points today. Forward by Ty Laffoon
Yellen stressed that the job market and economy still need Fed support. She reiterated that the Fed would continue to lend a hand by keeping rates low for a long time, despite fears to the contrary as the Fed dials back on its monthly bond purchases.
Yellen, in her own words:
Forward by Ty Laffoon
“I think this extraordinary commitment is still needed and will be for some time,” she wrote in her prepared speech. ”And I believe that view is widely shared by my fellow policymakers at the Fed.”
“Recent steps by the Fed to reduce the rate of new securities purchases,” she added, ”are not a lessening of this commitment, only a judgment that recent progress in the labor market means our aid for the recovery need not grow as quickly. Earlier this month, the Fed reiterated its overall commitment to maintain extraordinary support for the recovery for some time to come. This commitment is strong.”
Sent by Ty Laffoon
Friday, March 14, 2014
Tread Carefully With Mortgage Reform
Tread Carefully With Mortgage Reform
We hear a lot of noise these days about the worthiness of food stamps, the minimum wage, corporate welfare, real welfare, agriculture subsidies and just about every government program where the free market is getting trampled by government interference.
As the debate about the necessity of those programs swells, probably no other industry has benefited more from the benevolence of Washington since the end of World War II than housing.
The creation of Fannie MaeFNMA +9.11%, the government-sponsored mortgage company, in 1938, followed by the G.I. Bill of 1944, which offered home loans to veterans, were the first of a flood of housing assistance and support that has flowed unabated to this day.
Tax credits for first-time home buyers and deductions for mortgage interest, a Clinton-era tax cut on gains on the sale of homes, low interest rates – the list goes on.
There is little, if any, credit or incentive lawmakers haven’t doled out to get people to buy homes, and in recent years, to sell them. No wonder the government now supports $10 trillion in mortgages through the Federal Housing Administration and the housing programs it oversees.
Whether the government’s interest in backing the housing market is a good idea or not isn’t the issue. The critical question is what the future of a more private landscape would look like. Would every potential home buyer, or existing homeowner, have the same opportunities their parents and grandparents did?
Simply put, the answer is no. Mark Zandi, the chief economist at Moody’s Analytics, concluded that mortgages could become harder to attain and certainly more expensive, with mortgage interest rates rising between 17 and 42 basis points, or roughly between $90 and $200 a month for a $165,000 30-year fixed mortgage at today’s rates.
That is if homeowners will still be able to get a 30-year fixed-rate mortgage. The 30-year fixie was made available by a 1954 act of Congress, but it’s something that may disappear, or become a premium product, under a housing overhaul.
In addition, many borrowers may have to pay for what are now freebies. Among them: the ability to lock in rates and the ability to pre-pay without penalties. And rising costs for new home buyers will put pressure on home prices, hurting existing home owners.
“No matter how the housing finance system is ultimately structured,” Mr. Zandi wrote, “mortgage rates will be higher.”
Ty Laffoon
Under the bi-partisan plan introduced by members of the Senate Banking Committee this week, a new system would replace the direct involvement of Fannie and Freddie MacFMCC +11.99% with federal insurance. Private lenders would either hold the loans or sell them to new firms which would package them and sell them to investors.
And in a troubling development, guess which firms are emerging as frontrunners to take the place of Fannie and Freddie?
Activist investors and hedge funds, led by Bruce Berkowitz’s Fairholme Capital Management and William Ackman’s Pershing Square Capital Management, want in on the game. In fact, Mr. Berkowitz, along with an investor group, has offered to buy Freddie Mac. Interesting. Fairholme is a mutual-fund company by definition, but you don’t see Fidelity Investments offering to buy government-sponsored mortgage giants too often.
Now there’s a comforting thought. The industry that is largely unregulated and has fought moves to bring disclosure to its ranks now wants to have a critical middleman role in the market where most middle-class Americans hold their net worth.
This isn’t to say hedge funds or Mr. Berkowitz would do a bad job. After all, companies including J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp., have been accused of or settled charges they misled Fannie and Freddie about the quality of mortgages they were selling them. Goldman and J.P. Morgan have paid settlements over creating mortgage securities that regulators charged were designed to fail, some to the benefit of hedge funds.
So, it’s not as if Wall Street is swimming in squeaky-clean institutions ready to take a role in a critical part of the American economy. Ty Laffoon
But does the average homeowner want his or her mortgage to be owned by Mr. Berkowitz or any hedge fund manager at any point and pay more to do it?
Ultimately, any housing overhaul will have to keep private mortgage companies on a tight leash. There will have to be regulated costs, a minimum offering of products to all demographics, limits or bans on short-selling and more. In short, the same standards that the government put on Fannie and Freddie and then some.
If Mr. Berkowitz wants to take over a “quasi” government entity, he needs to become a “quasi” government official. He’s going to love that.
It’s wise, or fortuitous, that the government has dragged its feet on a housing overhaul. The market is in a fragile recovery. Any plan, enacted or not, is likely to send shivers through the industry. That’s why it needs to choose Fannie and Freddie’s replacements wisely.
Returning housing to the free market may have its benefits, but undoing seven decades of policy aimed at affordability and accessibility in just a few years threatens to punish the future generations we expect to buy or own our homes in the end.
- Reuters
The creation of Fannie MaeFNMA +9.11%, the government-sponsored mortgage company, in 1938, followed by the G.I. Bill of 1944, which offered home loans to veterans, were the first of a flood of housing assistance and support that has flowed unabated to this day.
Tax credits for first-time home buyers and deductions for mortgage interest, a Clinton-era tax cut on gains on the sale of homes, low interest rates – the list goes on.
There is little, if any, credit or incentive lawmakers haven’t doled out to get people to buy homes, and in recent years, to sell them. No wonder the government now supports $10 trillion in mortgages through the Federal Housing Administration and the housing programs it oversees.
Whether the government’s interest in backing the housing market is a good idea or not isn’t the issue. The critical question is what the future of a more private landscape would look like. Would every potential home buyer, or existing homeowner, have the same opportunities their parents and grandparents did?
Simply put, the answer is no. Mark Zandi, the chief economist at Moody’s Analytics, concluded that mortgages could become harder to attain and certainly more expensive, with mortgage interest rates rising between 17 and 42 basis points, or roughly between $90 and $200 a month for a $165,000 30-year fixed mortgage at today’s rates.
That is if homeowners will still be able to get a 30-year fixed-rate mortgage. The 30-year fixie was made available by a 1954 act of Congress, but it’s something that may disappear, or become a premium product, under a housing overhaul.
In addition, many borrowers may have to pay for what are now freebies. Among them: the ability to lock in rates and the ability to pre-pay without penalties. And rising costs for new home buyers will put pressure on home prices, hurting existing home owners.
“No matter how the housing finance system is ultimately structured,” Mr. Zandi wrote, “mortgage rates will be higher.”
Ty Laffoon
Under the bi-partisan plan introduced by members of the Senate Banking Committee this week, a new system would replace the direct involvement of Fannie and Freddie MacFMCC +11.99% with federal insurance. Private lenders would either hold the loans or sell them to new firms which would package them and sell them to investors.
And in a troubling development, guess which firms are emerging as frontrunners to take the place of Fannie and Freddie?
Activist investors and hedge funds, led by Bruce Berkowitz’s Fairholme Capital Management and William Ackman’s Pershing Square Capital Management, want in on the game. In fact, Mr. Berkowitz, along with an investor group, has offered to buy Freddie Mac. Interesting. Fairholme is a mutual-fund company by definition, but you don’t see Fidelity Investments offering to buy government-sponsored mortgage giants too often.
Now there’s a comforting thought. The industry that is largely unregulated and has fought moves to bring disclosure to its ranks now wants to have a critical middleman role in the market where most middle-class Americans hold their net worth.
This isn’t to say hedge funds or Mr. Berkowitz would do a bad job. After all, companies including J.P. Morgan Chase & Co., Goldman Sachs Group Inc. and Bank of America Corp., have been accused of or settled charges they misled Fannie and Freddie about the quality of mortgages they were selling them. Goldman and J.P. Morgan have paid settlements over creating mortgage securities that regulators charged were designed to fail, some to the benefit of hedge funds.
So, it’s not as if Wall Street is swimming in squeaky-clean institutions ready to take a role in a critical part of the American economy. Ty Laffoon
But does the average homeowner want his or her mortgage to be owned by Mr. Berkowitz or any hedge fund manager at any point and pay more to do it?
Ultimately, any housing overhaul will have to keep private mortgage companies on a tight leash. There will have to be regulated costs, a minimum offering of products to all demographics, limits or bans on short-selling and more. In short, the same standards that the government put on Fannie and Freddie and then some.
If Mr. Berkowitz wants to take over a “quasi” government entity, he needs to become a “quasi” government official. He’s going to love that.
It’s wise, or fortuitous, that the government has dragged its feet on a housing overhaul. The market is in a fragile recovery. Any plan, enacted or not, is likely to send shivers through the industry. That’s why it needs to choose Fannie and Freddie’s replacements wisely.
Returning housing to the free market may have its benefits, but undoing seven decades of policy aimed at affordability and accessibility in just a few years threatens to punish the future generations we expect to buy or own our homes in the end.
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