Wonder what the real estate market would look like without FNMA and Freddie Mac around to buy up everyone’s mortgage loan?
Fortunately, there are some wise people out there who remember what the world was like before loans were collateralized, before investor money flooded the market, making 100% loans (103% loans, even) available.
Brad Inman just about covers it all, in a column he wrote yesterday.
A moratorium on home loans — can you imagine?
In the early 1970s, the housing market had no meaningful secondary mortgage market. When passbooks savings — which capitalized most mortgages — shrank, money for home loans dried up.
In 1968, Fannie Mae and Freddie Mac were re-chartered by Congress as shareholder-owned companies funded solely with private capital raised from investors on Wall Street and around the world. But it was not until the 1980s that they found their footing and their growth mushroomed. Mortgage-backed securities got traction in the early part of this decade with the national push for home ownership. New mortgage instruments were invented to capture global interest in U.S. home loans.
In this period, a secondary market came onto the scene with brute force. By 2005, the size of the market had ballooned to $3 trillion.
And today? It has collapsed. Even Fannie Mae and Freddie Mac are poised for a government bailout. Today, Fannie Mae’s stock has tumbled 45 percent and Freddie’s has fallen 20 percent. This is after steep declines all week.
So, imagine a return to a housing market without a robust and functional secondary housing market. In other words: a severe credit crunch.
Here are 10 things that I predict will flow from its collapse (many of which have already hit the beleaguered housing market):
Read on: Imagine housing without a secondary market – By Brad Inman, Inman News