San Francisco Fed: GSE Prevalence Makes It Hard For Housing Market To Recover
10/26/2009 1:07 PM ET
(RTTNews) -
A senior economist at the San Francisco Federal Reserve Bank said Monday that that government sponsored enterprise intermediation of mortgage lending will make it difficult for the housing market to "return to normal."
In a letter released by the San Francisco Fed, economist John Kramer said that GSEs such as Fannie Mae, Freddie Mac and Ginnie Mae guarantee a large share of originations, while non-agency mortgage securitization and loans have dried up.
Kramer wrote that the banking institution share of mortgage assets declined from 75 percent in the 1970s to 35 percent in 2008 due to the expansion of GSEs.
He added that the expansion of the GSEs has had a great impact on the type of borrowers receiving loans. Pointing to data in late 2006, at the end of the housing boom, Kramer said that about 20 percent of all mortgage originations were made up of subprime loans, and that by 2008, the subprime share was "effectively zero."
"Since then, increased FHA lending—identified here by Ginnie Mae's share—has revived this segment of the market," he added. "After plummeting in early 2008, the share of borrowers with FICO credit scores lower than 660 has returned to just higher than 20%, the same share as when subprime securitization peaked in 2006."
Kramer concluded his letter by writing that it would be difficult to "disentangle the role played by declining demand for mortgages from the declining supply of credit."
"Lender surveys, such as the Federal Reserve Senior Loan Officer Opinion Survey, have consistently reported that borrower demand has declined over the course of the recession," he wrote. "Credit supply problems, however, still appear to be a major problem affecting the housing market."
by RTT Staff Writer
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