Where Is the Mortgage Market Headed?
I read a very good article recently which was one person’s idea about where the mortgage market needs to go from here. It was written by John Stumpf of Wells Fargo and he had some very good insights into what type of role he thinks Freddie Mac and Fannie Mae should play in the mortgage market. (You can read his article at http://money.cnn.com/2011/04/04/real_estate/john_stumpf_mortgage.fortune/index.htm).
What would happen if Freddie and Fannie became insurance companies that insured mortgages like the FDIC, and to which banks paid a premium? What would happen if they no longer bought the mortgages that banks wrote, but only insured the banks against loss in case of default? What would that look like in the world of mortgages?
Freddie and Fannie could become self-sustaining and even realize a profit, like most insurance companies. What would you need to qualify for a home loan in that scenario? Twenty percent down instead of ten? Better credit scores showing that you were less likely to default on a loan? More standardized underwriting policies? Better servicing standards?
Can you imagine a mortgage market where the secondary market was more efficient and was a more attractive investment than it is currently? Can you imagine if banks paid premiums to insure their mortgages, just like their savings? It would result in more money from investors. Banks would be willing to carry more mortgages on their books. There would be more money available to banks for loans, which would mean more people being able to buy their own homes. At least, that is what I think. What are your thoughts?