The government is buying and insuring 60 to 70 percent of all mortgages. The government owns the mortgage market. It’s a nationalized market .”









Richard X. Bove Vice president of equity research at Rafferty Captial Markets


Credit Box Too Tight According to the Washington, D.C.-based Urban Institute, home lending credit standards are too tight. Laurie Goodman, one of the best-known mortgage analysts on Wall Street, said the “credit box is tight” largely due to “meticulously originated, squeaky-clean loans.” “A near-zero default environment is clear evidence that we need to open up the credit box and lend to borrowers with less-than-perfect credit,” writes Goodman in an Urban Institute blog. “There’s something interesting and important going on in the mortgage market today: borrowers who took out mortgages in the past five years have rarely defaulted, making them better at paying their mortgages than any other group of mortgage borrowers in history,” wrote Goodman in her Urban Institute blog .

Bove — who predicted the subprime mortgage meltdown in a chilling 2005 report titled “ The Powder Keg is Going to Blow ” — worries that new government rules, namely the Dodd-Frank Act, have curbed mortgage profits and, therefore, bank profits. He called the government’s reaction to the financial collapse of 2008 a “disaster in the making for the people of this country and the banks that serve them.” In “Powder Keg,” Bove argued that loose lending standards had created the housing bubble and that it was going to end abruptly and painfully. “As a result of all these changes, you find that the banking industry is extremely reluctance to make mortgages in the fashion that they did in the past,” said Bove, noting the pull-back in depository lending. “Many banks can’t make money by making mortgages. The net effect is what the industry wants is to make mortgages that they can sell to Fannie

Mae and Freddie Mac. But the U.S. Treasury Department wants Fannie Mae and Freddie Mac out of business by 2017 or 2018. So, the question becomes: Who’s going to buy these mortgages? And if we’re talking about 30-year, fixed-rate mortgages, which are yielding less than 4 percent, who’s going to be crazy enough to buy these mortgages?” The powder keg did blow up in the fall of 2008, with the worst financial crisis since the Great Depression. Fast forward to today, and Bove suggests that the current setup with the government dominating the mortgage industry isn’t sustainable. According to Bove, the heavy government involvement in the mortgage industry is a recipe for disaster.

But not everyone is so bearish.

ATTOM Data Solutions • P6

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