Is The "Government Option" Killing the Mortgage Industry?
Like most of you, I don’t care much for too much government in my life. I deplore bribes like home buyer credits because we’re mortgaging our children’s future. Understanding the nefarious effects of government participation in private markets, however, is difficult for most of us. The sad reality is that our society has been marching towards collectivism since the 1930s. Nobody under the age of 90 REALLY understands what a “free” market is. That pisses me off.
That’s sort of hypocritical for a guy who earns a living as San Diego’s VA Home Loan broker, isn’t it? I mean, I haven’t funded a loan, without some sort of government guarantee, in 12-18 months. The Fed’s support of the mortgage-backed securities market has artificially lowered rates to jump-start our business. Ginnie insures 25% of most loans I write and Fannie guarantees the securities for the other ones.
I guess I’m just ungrateful.
Then it hit me ! The “government option” makes it impossible for private mortgage financing to make a profit. Certain banks received TARP funds, at a ridiculously low carrying cost (like .25%), and lend that money out, risk-free, at 5.0%. That’s an awfully FAT profit for a virtually risk-free transaction. That may sound good to you but it tells me that we are dissuading private lenders from entering a market which so sorely needs them.
What’s “the government option” sound like? If you’ve been watching Glenn Beck, you know what the government option is. The residential real estate finance industry is a shining example of how it DOESN’T work. This isn’t about health care, though; I’m talking about home loans.
I want you to think good and hard about the negative effects of the current funding monopoly. While it seems great now, this mortgage subsidy is going to have a whipsaw effect, not too far down the road, and it’s gonna hurt. Private lenders can’t develop a loan product that yields enough for their portfolio (or for the securitized pool investors) because of that single-payer option in mortgages.
If we can’t get the Government out of our lives today and develop private market solutions for the “new” mortgage market, when will we? Face it. We’re no more” free marketeers” than the folks at the Social Security administration- and THAT is something that worries me about the future of the mortgage industry.