patrick.net

http://ochousingnews.com/blog/freddie-fannie-reform-will-foil-housing-reflation-efforts/

Attracting private equity to housing finance without GSE loan guarantees will raise lending costs and lower loan balances, hindering bubble reflation.

Since many borrowers at the margins borrow the maximum allowed based on their income, any increase in borrowing costs decreases their borrowing power, lowers their bids for houses, and ultimately hinders efforts to fully reflate the housing bubble. For lenders and underwater loan owners who want prices as high as possible, higher borrowing costs imposed on new borrowers is a bad thing. Unfortunately, it’s impossible to reform Freddie Mac and Fannie Mae, the GSEs, without increasing borrowing costs.

Senators recently unveiled a Fannie Freddie reform plan. Housing industry lobbyists oppose any meaningful reform; realtors, homebuilders, and lenders all want continued government backing of most mortgage loans because it facilitates doing business and maximizes their profits — they don’t care that taxpayers shoulder the liabilities.

Not just don’t industry insiders want to see the GSEs reformed due to the increased borrowing costs such reform will entail, they want to see the GSEs charge lower fees and put the taxpayer at greater risk.

#housing