Could Expanded Credit Boost the Recovery?

by 15 Apr 2013

It’s clear that thus far in 2013, the housing market has sustained the recovery that began gaining steam in the latter half of last year. The housing recovery has been so comprehensive that as of last December, homes gained the greatest in value year-over since 2006. While gains have not been too drastic, there are still no premonitions of a slowdown. That being said, there has been at least some consideration as to whether demographic or fiscal factors will emerge down the line and decelerate gains in the housing sector. Granting that value growth seems set for the immediate, what, if anything, could be utilized to encourage sustainable market gains?

According to new analysis from The Washington Post, further extending credit to responsible parties may bolster the chances of a sustainable housing recovery. The article hinges on the assertion that simultaneously extending credit to reliable applicants while encouraging private lenders to return to the mortgage industry could help establish the financial and loan infrastructure necessary to prevent the housing market from recessing.

As we’ve seen within the past few months, much of the continued recovery in the housing market has emerged from positive gains in one economic silo playing off the other. In particular, increased sales volume has led to a rise in home values, which has submerged a swath of underwater mortgages and further enabled otherwise restricted homeowners to put their property to market. To return to the assertions made by the Washington Post report, the public sector currently issues nine out of ten new loans. In order to augment credit flow, it might be necessary to transition a proportion of mortgage issuance to private capital. As recent reports have pointed out, there are possible complications for both industry and the American taxpayer if the Federal Government continues to ensure such a substantial volume of mortgages.

As an adjunct to this, returning mortgage handling to the private sector could also revitalize the mortgage securities market. Understandably, a large portion of America is hesitant to even consider passing back mortgage handling to Wall Street, as profit-fixated machinations around mortgage-backed securities were a powerful component in the 2008 financial collapse. However, this will allow the mortgage industry as a whole to overcome some of the policy roadblocks that are preventing otherwise creditworthy families from being able to take out new loans. While certain amounts of financial barricading were necessary during the fallout ensuing from the market collapse, they could only serve as impediments now that new regulation are implemented and broader market recovery has gained traction.

This sort of reasoning ultimately remains speculative, as there seem no current motions to transition loan handling away from the public sector. In addition, Fannie Mae has recently returned to a period of notable profitability. It still remains to be seen if the housing recovery endures, and what factors in particular will sustain its momentum if the original factors that motivated traction lose steam.



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