Will Fannie and Freddie play a role in housing's recovery?
Yesterday, we learned that the Obama administration was pressuring Fannie Mae and Freddie Mac to write down so- called underwater loans that continue to pose a major threat to the U.S. housing market by way of the glut of homeowners believed to be at risk of default should their personal finances or home prices worsen ( http://tiny.cc/rh8kp) . Nearly 23% percent of borrowers are now underwater on their mortgage and the shadow inventory of foreclosed properties will only add downward pressure to prices. Today CNBC reports that the Department of Housing and Urban Development is considering ways to get more investors into the housing market, possibly with the help of Fannie and Freddie. Experts believe that the only way to right the housing market is to get long-term investors to eat up the excess inventory. Currently, Fannie Mae and Freddie Mac both limit the number of investor mortgages. It seems clear in recent days that the Obama Administration is taking issue with the large inventory of homes, which is likely why officials are putting ever more pressure on Fannie and Freddie to write down mortgage principal. It is also evident that current market conditions are not going to lead many private investors to scoop up the inventory unless they have some incentives. Whether it’s principal write-down or investor incentives, the housing market is not going to right itself on its own and something must be done to stop the surplus of inventory from increasing.
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