June 14, 2009

AS A NEIGHBORHOOD ECON PROF POINTED OUT...:

A tale of two markets divided by the conforming-loan limit: Mortgage rates are low and sales are booming for cheaper homes. But sales are at a virtual standstill for pricier homes because buyers can't get jumbo loans at acceptable rates. (Lew Sichelman, June 14, 2009, LA Times)

Roused by a combination of low mortgage rates, sagging prices and government largesse, first-time buyers appear to have entered the housing market with a vengeance. According to the latest statistics from the National Assn. of Realtors, half of existing-home sales were to rookies who had never owned homes before.

But at the top of the housing ladder, the move-up market remains at a virtual standstill, stymied by the inability of sellers to attract buyers who can obtain financing at rates close to what first-timers are paying. [...]

What we have is a tale of two markets where the dividing line is $417,000, the so-called conforming-loan limit. It's the ceiling on the loans that can be bought by Fannie Mae and Freddie Mac, the two government-sponsored enterprises that buy loans from primary lenders and package them into securities for sale to investors.

Below that amount, Fannie and Freddie provide the grease that keeps money flowing into housing. But above the ceiling, known as the jumbo-loan market, there is no government underpinning in most places.

"If you ever wondered what the mortgage market would look like without government support, that's what we have today in the jumbo market," says Howard Glaser, a Washington, D.C., financial services industry analyst. "And it's not just the high end of the market that's impacted. It affects the market all the way down the ladder, and I'm not sure policymakers in Washington understand that."


...despite the seeming similarity of the borrowers and the repayment rates, there's never been a securitization of small business loans similar to what occurred for mortgages...why is that? The answer lies entirely in the absence of government guarantee for the former.

Posted by Orrin Judd at June 14, 2009 8:42 AM
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