The vicious cycle of federal encroachment into the housing market is coming full circle in the near future. Housingwire reports that the Federal Reserve is endorsing a program to allow Federally owned homes to be made into rental properties:
"Preliminary estimates suggest that about two-fifths of Fannie Mae’s REO inventory would have a cap rate above 8% — sufficiently high to indicate renting the property might deliver a better loss recovery than selling the property," Bernanke's staff writes in a supporting white paper.
"..support for such a program will cost mortgage servicers, bond investors and even taxpayers. But it may be a sacrifice for the greater good.
"Some actions that cause greater losses to be sustained by the GSE in the near term might be in the interest of taxpayers to pursue if those actions result in a quicker and more vigorous economic recovery," the white paper states.
This would complete the pernicious circle of government intrusion into the free housing market. Right now Uncle Sam issues about 95% of all home loans. Presently, many of those loans are being issued on REO homes that are owned by Uncle Sam as well. Finally, we find out that Uncle Sam will now be wanting to rent all the homes that it owns due to making bad loans in the first place.
This proposition of an REO-to-Rental program is inappropriate. The article sites tight underwriting guidelines as the reason for the program. The Federal government created this scenario by keeping unhealthy banks alive and not letting them fail. Banks have no incentive to lend while they get cheap money to buy Treasuries that yield them a guaranteed (but low) return on investment. Why would they lend to the man on the street when they can get a risk free ride from Uncle Sam? Pure folly.
Let's get government out of the housing market.
No comments:
Post a Comment