Reading this article today http://www.nytimes.com/2008/07/14/washington/14fannieweb.html An interesting question popped into my head; If fannie and freddie are the way USA mortgage lenders have securitised 42% of USA mortgages how does it work in other countries? This affects Jodie and I directly as we have a deposit 'out' in the market sitting in escrow, just waiting for the co-op interview in... [more]
Reading this article today
http://www.nytimes.com/2008/07/14/washington/14fannieweb.html
An interesting question popped into my head;
If fannie and freddie are the way USA mortgage lenders have securitised 42% of USA mortgages how does it work in other countries?
This affects Jodie and I directly as we have a deposit 'out' in the market sitting in escrow, just waiting for the co-op interview in order to close and although we have 2 commitment letters the rates are not locked in at all...... yeh I know - shitty position to be in.
In Australia I thought Rams, Wizard, banks etc securitised on the debt market directly eg. no quasi government entity buying up packaged securities.
Now here is my second question.....if fannie and freddie didn't exist wouldn't it be better for the average home owner?
Sure interest rates would be higher but then idiots wouldn't be bidding up the price so much in the first place, so although there wouldn't be as much capital growth tied to increasing sale prices....it wouldn't cost you as much in the first place.
And although this may sound bad....as your salary is tied to cost of living/raises/comparable job offers etc and not the price of housing having a cheaper mortgage is actually just making you a slave to the system in real dollar amounts for a longer period of time right?
What am I missing?
Cheers,
Dean
[less]
Response by Goldie
almost 18 years ago
Posts: 182
Member since: Apr 2007
1) How does it work in other countries? - The US has the only real agency mortgage market. Historically, Germany and Denmark created securitized mortgage markets generations ago, but securitized markets (at least liquid ones) in other countries only developed over the past 10 or so years. In each of these markets, there is no government guarantee, they are issued by the private banking sector. Prior to this, banks owned mortgages and kept them on their books. Ironically, the UK has recently been considering a US style agency mortgage market.
2) If Fannie & Freddie didn't exist wouldn't it be better? - Criticisms of the agencies include: 1) it crowds out the private banks and doesn't allow them to compete, and 2) the costs to the taxpayer if they failed isn't worth the marginal benefits of lower mortgage costs. The US has one of the highest home ownership rates in the world, and much of this had to do with Fannie and Freddie. But whether it's worth the costs, I don't know. We're now going to find out the costs!
But the current housing crisis had little to do with Fannie and Freddie. It had everything to do with poor underwriting by mortgage brokers and private banks and naive investors looking for yield and their well-paid brokers who sold them the crap. These subprime and Alt-A junk non-agency mortgages were what allowed people buy too much house which they couldn't afford. This, the private banking sector, is where the problem started, but the contagion has now cast a pretty wide net, including Freddie and Fannie as house prices fall and all defaults increase.
And finally - You are a slave to the system as long as you play the game. But you can always move to a cheaper part of the world. That's what most of the people I know have eventually done.
1) How does it work in other countries? - The US has the only real agency mortgage market. Historically, Germany and Denmark created securitized mortgage markets generations ago, but securitized markets (at least liquid ones) in other countries only developed over the past 10 or so years. In each of these markets, there is no government guarantee, they are issued by the private banking sector. Prior to this, banks owned mortgages and kept them on their books. Ironically, the UK has recently been considering a US style agency mortgage market.
2) If Fannie & Freddie didn't exist wouldn't it be better? - Criticisms of the agencies include: 1) it crowds out the private banks and doesn't allow them to compete, and 2) the costs to the taxpayer if they failed isn't worth the marginal benefits of lower mortgage costs. The US has one of the highest home ownership rates in the world, and much of this had to do with Fannie and Freddie. But whether it's worth the costs, I don't know. We're now going to find out the costs!
But the current housing crisis had little to do with Fannie and Freddie. It had everything to do with poor underwriting by mortgage brokers and private banks and naive investors looking for yield and their well-paid brokers who sold them the crap. These subprime and Alt-A junk non-agency mortgages were what allowed people buy too much house which they couldn't afford. This, the private banking sector, is where the problem started, but the contagion has now cast a pretty wide net, including Freddie and Fannie as house prices fall and all defaults increase.
And finally - You are a slave to the system as long as you play the game. But you can always move to a cheaper part of the world. That's what most of the people I know have eventually done.