12 REALTOR® MAY/JUNE 2014 REALTORMAG.REALTOR.ORG
The Need for a Federal Backstop
The private mortgage-backed secu- rities market is finally rebounding, supplying capital to real estate
transactions after a long hiatus. The
evidence is from the commercial side of
the market, which, unlike residential, has
only private capital available to it. The residential side has government-backed loan
insurance via the FHA and government-backed MBS guarantees through Fannie
Mae and Freddie Mac.
In the past year, the commercial MBS
market roughly doubled and is projected
to rise by another 20 to 30 percent this
year. As a result, transactions are projected to rise by 10 to 15 percent.
The increased capital flow is a result of
the improving economy, healthier banks,
rising property prices, and plentiful cash
flowing across the globe seeking juicier
yields than those offered by government
Given this brightening picture, you
might think a return to pure private capital is needed on the residential side, as
some in Congress call for. But that is the
wrong lesson to draw.
Although we should celebrate the
improved availability of private capital, we
need to remember that the commercial
MBS market had collapsed by nearly 99
percent in 2009, the year after the financial crisis, from $229 billion to $3 billion
and was virtually nonexistent for three
consecutive years. Had such a situation
been the case on the residential side,
home sales activity could have similarly
crashed. Pure private capital is fickle.
Americans wisely understand that it
creates dangerous uncertainty to subject
the housing market to the fast-changing
whims of pure private capital. That is why
the National Association of REALTORS®
has been a leading advocate for increased private capital but with a continued government backstop.
Americans also get that pure private-
bank mortgage lending and excessive
risk-taking can lead to a meltdown.
Watching the Federal Deposit Insurance
Corp. step in after high-flying banks
collapsed during the Great Recession
reminds us that the bill still falls on the
taxpayer when the federal government
doesn’t guarantee the mortgage loans.
Pure private capital is nice in theory,
but it’s potentially devastating for home
owners and taxpayers.
Lawrence Yun is
NAR chief economist.
top of mind
Measures housing contract activity. An index of
100 is equal to the level of activity during 2001,
the benchmark year.
Seasonally adjusted annual rate, which is the
actual rate of sales for the month, multiplied by 12
and adjusted for seasonal sales di;erences.
Number of existing homes on the market at the end of the month.
Derived from monthly REALTOR® Confidence Index. Results for
March are based on 3,833 responses to 6,000 surveys sent to
large and small real estate o;ces. The survey asks practitioners
to indicate whether conditions are strong (100 points),
moderate ( 50), or weak (0). Some data may be revised from
42 Market Pulse
Spring is in the air and so is increased confidence in housing markets. But REALTORS®
say tight inventories and hard-to-get credit remain drags on business. Two factors
hurting credit availability are federal mortgage rules (qualified mortgage ability-to-repay
rules) that took effect at the beginning of the year and increases in FHA premiums.
On the plus side, fewer transactions are hitting snags because of appraisal problems.