It’s no secret that the health of US Housing market is very much dependent on access to mortgage financing. The home buying landscape changed in 2008 when the credit crunch began and lenders actually read mortgage applications. More than 90% of all mortgages are now being funneled one way or another through Fannie Mae and Freddie Mac (the former government sponsored enterprises or GSEs) and by extension, the American taxpayer.
The government is trying to ween the US mortgage market off its total dependence on the US taxpayer and increase reliance on the private sector. They are also introducing reforms in the mortgage process to reduce the odds of a repeat of the past several years.
Fannie and Freddie are hemorrhaging but largely from non-performing mortgages purchased prior to 2008. Supposedly they are breaking even on new loans being issued, which are actually “AAA” risk quality, unlike the meaningless “AAA” label of a few years ago.
A report on the future of the former GSEs is due out on Friday and it’s content is important to the future health of the US housing market. Lots of solutions are being proposed.
It is largely anticipated that the report will reflect a hybrid of public/private but with more private sector involvement with some sort of federal guaranty behind it. Government exposure to mortgages would rise and fall with the state of the economy – more involvement when the economy is weak.
The underlying goal being telegraphed out of Washington so far seems to be keeping the weak housing market as stable as possible. Stay tuned.