That’s the big question, isn’t it?

I believe that in the absence of Fannie and Freddie, the mortgage market would have had no choice but to raise rates tremendously to properly price in the risk, and prices would have had to crash to compensate for the horrific interest rates. That would be the only way to make purchasing mortgages appealing to investors.

So what does that mean for us now? Unless Congress wants to bankroll a bunch of bad loans at below market rates, it seems like we could be shifting toward that scenario.

Long term however, I think credit is going to have to loosen a lot. HBs built under the assumption that everyone with a pulse should have a house. If we have a world where only the most credit worthy own houses- what can be done with the difference?

My dad told me that when he moved to AZ in the early sixties, there had been a huge RE bust in Phoenix. You could drive around Scottsdale and there were large pink stickers on the doors of foreclosures. Pick a house, pick a payment, and the house was yours.

The government is the wild card. Do they let the free market work- which brings about tightening in the short term, and loosening in the long term, or do they try and prop up the GSEs?

I don’t believe that propping up the GSEs by nationalization or other means will prop up the market. Supply/demand will continue to put downward pressure on the market and defaults will continue- at great expense to the taxpayer.

The hearings today should be informative- we’ll see if the government really believes that are capable of implementing a “hurricane prevention program”.

Do you see the fall of Freddie and Fannie turning into a very significant credit crunch (high down payments of 20% or more and greater
documentation of income)???

I would be very interested in your take on the situation.

Thanks

“I’ve got mortgages on homes, I’ve got stiffness in my bones …

(OK, Wednesday was way hairier than Monday, even. I’ve got to try making fun of this. “Disaster,” says Igor, but I say “Horror!”)

“Fannie, Freddie Socked by Investor Paranoia”, by Paul Jackson, Housing Wire, July 7, 2008.

Potential payback aside, I’d still probably rather buy 16 lottery tickets than one share of FNM

What is likely to give the higher ROI- a share of FNM or a lottery ticket?

Any opinions?