There’s a whole weird risk aversion dueling thing going on.
On one hand, Freddie and Fannie are losing a lot of money, although its arguably from legacy lending rather than the AAA product today. On June 1 Freddie will require 5% for all conventional mortgages, up from 3%.
On the other hand, increasing down payment requirements reduces the number of people that can afford to buy. In the days before the credit boom, we had plenty of sub-20% down payment mortgage lending. Perhaps the amount of the downpayment should be intelligently weighed against credit risk rather than setting some sort of arbitrary number.
Still, what good is homeownership if its not sustainable?
Is requiring 20% down the next step? I doubt it. 10%?
Plus, with 90%+ GSE current market share for current mortgage volume will have to be replaced. Risk aversion as a mindset is probably a good way to bring back in the private investors.
The…intention to wind down Fannie and Freddie on a responsible timeline. That tells you this reform/winding down process will take many years and much debate. 5 to 7 years according to Treasury Secretary Tim Geithner.
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