What do visits to Northeastern mortgage bankers and Florida’s mortgage bankers in the same week show, besides too much traveling?
One is they are not too worried about a new housing bubble forming as national real estate values rise by 10% per year. They think that is a normal reaction to an abnormally steep falloff over the past five years.
Another is they are keenly interested in who or what will make a nonconforming mortgage market so the entire mortgage universe isn’t in guvvies. Real estate investment trusts and hedge funds got mentions as possibles.
In Florida, where we shared a panel with Alex Pollock, the former CEO of the Federal Home Loan Bank of Chicago, at the annual secondary market conference of the Mortgage Bankers Association of Florida, it became evident that the housing recovery has extended even into the beleaguered Sunshine State.
The Naples market, for instance, is doing quite well and even showing some shortage of inventory. However, the recovery isn’t general throughout Florida.
The hope of new players to make markets in nonconforming mortgages is natural since a functioning market there would help steady the market and make products available to a wider range of borrowers.
The trouble with REITs or hedge funds (or anyone, really) is that while they may enter the arena with great fanfare, they may also exit it hastily. We have had two instances in the last 15 years of nonconforming conduits beating a hasty retreat when market conditions changed.
That’s because, unlike Fannie Mae and Freddie Mac, they are not required to make a market in mortgages.
They are required to do only what their boards deem profitable. If the board wants to get out of mortgages on Friday, that company will stop buying mortgages on Monday (or at any rate, very soon).
The GSEs and Ginnie Mae (though Pollock made a telling point the GSE label is pointless since all three are now wards of the government) are obliged to make a market in mortgages as part of the public policy objectives of generations of Administrations, both Republican and Democratic.
Though their remains much discussion about what to do about Freddie and Fannie, current public policy seems to be the old argument of letting them earn their way out of debt. The agencies are now showing operating profits of billions every quarter and all of that money now goes to the Treasury to help cut the deficit.
The only trouble with that strategy is that it would take many, many quarters to make up the $150 billion or so of losses taken by taxpayers as a result of the two.
