The New York Times recently reported that “high value” homes are going to lose government support in the secondary mortgage market – and that that loss will likely further deteriorate the real estate recovery. It was right.
“By summer’s end,” it reported “buyers and sellers in some of the country’s most upscale housing markets are slated to lose their biggest benefactor of the economic downturn: the deep pockets of the federal government. In [Monterrey, CA, a] seaside community of pricey homes, the dread of yet another housing shock is already spreading.
‘We’re looking at more price drops, more foreclosures,’ said Rick Del Pozzo, a loan broker. ‘This snowball that’s been rolling downhill is going to pick up some speed.’
For the past three years, federal agencies have backed new mortgages as large as $729,750 in desirable neighborhoods in high-cost states like California, New York, New Jersey, Connecticut and Massachusetts. Without the government covering the risk of default, many lenders would have refused to make the loans. With the economy in free fall, Congress broadened its traditionally generous support of housing to an unprecedented degree.
But Democrats and Republicans agree that the taxpayer should no longer be responsible for homes valued well above the national average and are about to turn a top slice of the housing market into a testing ground for whether the private mortgage market can once again go it alone. Michael Barr, a former assistant Treasury secretary, said the federal government’s retrenchment would be painful for many communities.
‘There’s always going to be a line, and for the person just over it, it’s always going to be an arbitrary line,’ said Barr, who teaches at the University of Michigan Law School. ‘But there is no entitlement to living in a home that costs $750,000.’
As the housing market braces for the trouble, homeowners everywhere have been reduced to hoping things will some day stop getting worse. In some areas, foreclosures are the only thing selling. New-home construction is nearly nonexistent. And CoreLogic, a data company, said Tuesday that house prices fell 7.5 percent over the past year. Each month, the number of faltering cities rises.
Federal agencies last year backed nine out of 10 new mortgages nationwide, and losses from soured loans are still mounting. Fannie Mae, which buys mortgages from lenders and packages them for investors, said last week that it needed an additional $6.2 billion in aid, bringing the cost of its rescue to nearly $100 billion.
Getting the government out of the mortgage business, however, is proving much more difficult than doling out new benefits. As regulators prepare to drop the level at which they will guarantee loans — here in Monterey County, the level will drop by a third, to $483,000 — buyers and sellers are wondering why they should be punished simply for living in an expensive region. Sellers worry that the pool of potential buyers will shrink. ‘I’m glad to see they’re trying to rein in Fannie Mae, but I think I’m being disproportionately penalized,’ said Rayn Random, who is trying to sell her house in the hills for $849,000 so she can move to Florida.
The National Association of Realtors is making an extension of the loan guarantees a top lobbying priority.
‘Reducing the limits will put more downward pressure on prices,’ said president Ron Phipps. ‘I just don’t think it makes a lot of sense.’ But he said that in contrast to last year, when a one-year extension of the higher limits sailed through Congress, ‘there’s more resistance.’
Federal regulators acknowledge that mortgages will get more expensive in upscale neighborhoods but say the effect of the smaller guarantees on the overall housing market will be muted.”
Really? No “entitlement” to live in an expensive house? Let Wall Street come up with a private secondary market for expensive (i.e. anything over $500,000?) homes? Who are they kidding? Especially in CA, CT, NT, VT.
This “sock it to the ‘rich’” business is a bunch of baloney.