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GSE Reform: Protecting Taxpayers and Housing Finance Programs that work



February 09, 2011 – Comments (4) | RELATED TICKERS: FNMA , FMCC

The movement to extract the GSE's from housing finance could have some unintended consequences. There is no question that policy to encourage homeownership at any cost is not the direction we want to revisit.

Many don't realize the role that Fannie and Freddie have played in providing liquidity to the rental housing market. Default rates on these properties is nominal (below 1%) and were largely underwritten with a great deal of responsibility.   

Hopefully we don't let political posturing ruin some programs that are actually working. 

Apartments are a critical component of the nation’s housing market, but history has made it clear repeatedly that the private market simply cannot meet a majority of the industry’s capital needs.  A federally backed secondary market is absolutely critical to the sector’s health and our ability to continue to meet the nation’s growing demand for rental housing.

There is a pretty good piece just released by a consortium of multifamily owners which states their position on the matter. They obviously have their bias but it makes some good points to consider if you just want to end Fannie and Freddie because you think it will immediately solve a problem.

It is more likely that a new problem will emerge in a sector that will need to meet a growing demand for people who will not be buying a home anytime soon.

Again, I linked to this piece understanding that is one side of the story. I thought it does a good job of laying out some points we don't get to hear often. Here are some key points:

Do No Harm: Preserve Multifamily Lending Program

Protect the Taxpayer: Look to Proven Multifamily Model

Federal Government Involvement Necessary and Should be Appropriately Priced

Liquidity Support Should be Broad and Available at All Times, Not Just “Stop-Gap” or Emergency

Mission Should Focus on Liquidity, Not Mandates 

4 Comments – Post Your Own

#1) On February 09, 2011 at 10:32 PM, Momentum21 (98.58) wrote:

And BTW, this is not a pump of my reason spec position in Fannie Mae...

I happen to think that Shaun Donovan will carry some weight and he gets housing finance. The eventual outcome is a separate issue from how the zombie ticker will perform in the long run.   

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#2) On February 09, 2011 at 11:02 PM, russiangambit (28.88) wrote:

I keep hearing about some new plans for GSEs for 3 days already but I am yet to see the said plans announced or what the plans actually are.  I am doubtful there is a plan that will work unless it is some major kick back to the banks to incentivize them to issue mortgages. I bet that will be it.

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#3) On February 09, 2011 at 11:18 PM, Momentum21 (98.58) wrote:

russiangambit - I don't think there is one. The republicans know what they want but they don't have a viable alternative. 

I know this post makes me sound like a big government type but I really am not. The government does many things inefficiently but there are parts of these particular programs that can be salvaged.

The Low Income Housing Tax Credit is another solid model.

The banks are going to get it one way or another. My case is for a balanced housing position...Fannie & Freddie have been successful on the rental side.  

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#4) On February 10, 2011 at 3:17 AM, checklist34 (98.75) wrote:

interesting post...  whatever they do, I hope they do it in a carefully calculated way lest we somehow shock ourselves.  ... 

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