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Death of Fannie and Freddie could kill 30-year fixed rate mortgage

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Mortgage Professional America | 17 Oct 2013, 07:00 AM Agree 0
If the government guarantee on conventional, conforming mortgages goes the way of the dodo, the United States can most likely kiss the 30-year fixed-rate mortgage goodbye
  • John | | 17 Oct 2013, 09:29 AM Agree 0
    I think law makers have by way of over reaction done enough damage to the mortgage industry. Cheap and easy money paved the path to the mortgage crisis. Of the two factors easy money is most to blame. Cheap money with strong lending requirements is good, couple cheap with easy and you have a crisis in the making.

    Reform the GSE's don't dismantle them. Prior to the GSE's getting into "ALT A" paper in response to the private markets offering of "subprime" the GSE's were effective in maintaining a steady availability of mortgage funding which is essential to a healthy housing market.

    Lets not toss the baby out with the dirty bath water.
  • John | | 17 Oct 2013, 09:41 AM Agree 0
    False dilemma. You make it sound like you only have 2 alternatives: Either sell it to Fannie Mae or keep it in your mortgage portfolio and assume the interest rate risk.

    There are plenty of Wall Street banks that would be more than happy to purchase those whole mortgages, securitized them, and sell them as MBS & CDO.

    Fannie & Freddie aren't the only game in town. Why should taxpayers be forced to assume the default risk for institutional investors? The hedge funds, pension funds, & insurance companies that purchase MBS and CDO are sophisticated institutional investors that can assume the default risk without a government subsidy that privitizes earnings for them and socializes losses (heads they win, tails taxpayers lose)
  • Augie | | 17 Oct 2013, 09:46 AM Agree 0
    I respect the opinion of people that think cheap and easy was the cause of the Mortgage melt down. That really is not true, Fraud was the real gangster. If a company says No Income, No Asset just give me a number without even looking to see what the client is depositing into the Bank is the formula for disaster. Bottom line you cannot guarantee fraud, someone loses. Simple formula: Check the income, verify that it is going to continue for a period and the down payment where did it come from.. To simple but that is the way you do it.
  • John Deleva | | 17 Oct 2013, 11:58 AM Agree 0

    I equate "easy money" with fraud thus we agree.
  • John Deleva | | 17 Oct 2013, 12:08 PM Agree 0

    I agree that the GSE's are not and should not be the only game in town, I was simply addressing the need for balance. My central point is the GSE's can and should play a role going forward. Reform, reduce tax payer exposure and foster alternatives to the GSE's. I suspect that a balance will be achieved and the GSE's will survive.
  • Patrick McCarthy | | 17 Oct 2013, 01:10 PM Agree 0
    I disagree. I don't think Wall Street will find the longer term mortgages an instrument they will want to invest in. Look at Canada. They have no terms over 20 years and their default rates are at a minimum.
  • John | | 17 Oct 2013, 01:29 PM Agree 0
    We're not talking about banks keeping mortgage mortgages in their portfolios

    We're talking about institutional investors like pension funds buying bonds that are secured by pools of mortgages (MBS). The investment horizon of a pension fund is AT LEAST 30 years long. And let's not forgot that the average life of a 30-year mortgage is only 7 years long. People move. When they move they sell their houses and when they sell their houses they repay their mortgages in full. Same thing for refinances. Honestly, prepayment risk is a bigger concern to bond holders than long maturities because it makes it impossible to compute the bond yield.
  • Barry | | 20 Oct 2013, 03:42 AM Agree 0
    The non-conforming 30-year fixed is alive and well...and is not backed by either GSE.
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