As we get from rhetoric to real numbers, some bigger questions begin to be raised.
Similar to eliminating Obamacare without a fully vetted plan in place or at least comprehending who will be left out in the cold, the elimination of GSE’s discussion gets louder from our new MBS King Treasury leader. I think we all agree that the quasi-governmental structure needs to go but the risks are too high without a tested MBS market in place. Trusting that Wall St will fall in line and pick up the GSE’s role is Pollyanna. As private entities, Wall St firms have to show a profit and be cautious in their risk, which often means not lending in certain markets at certain times. Or being overly aggressive to other markets that are safer (high net worth) or more profitable (high balance government). In essence we would be playing chicken with the housing market by pulling away government financing too soon without a period of consistency and trust among all counterparties. We played chicken with the housing market mid 2000’s and that didn’t work out too well.
Cutting HUDs budget by 13.2% is also a concern. We all know that HUD has been underfunded or at least inefficiently run for many years. There are many great committed people struggling inside an old bureaucratic structure. We have felt the pain in particular with HUDs lack of technology. HUD along with VA and USDA have been consistently 10+ years behind the curve. Also driving a robust and independent counseling and education structure for the poor and first-generation markets is essential for success on all sides. I’m sure there are 13% in inefficiencies to be carved out of any agency, I just don’t have faith that a neurosurgeon has that kind of operating skill.
There has also been an aggressive call to quickly deleverage the Fed’s balance sheet of its MBS holdings; under the position that the government needs to get out of housing. The problem goes hand in hand with eliminating the GSE’s without a solid self- standing market in its place. Dumping these positions in to the market will be cataclysmic. At these Fed subsidized rates Wall St isn’t interested in buying long term paper. That should tell you something about the future if you keep the Fed out of housing; there will be long periods of time when the market will shut down. As any fiancé guy will tell you, if you are forced to stay in you will ride out the markets and are usually rewarded. The GSE’s have paid back their debt HUD/VA/USDA all made it through, ALL after having had their last rites read to them. They kept our housing markets LIQUID 365 days a year; they couldn’t bow out when things got dicey.
So as I said last time, there is plenty of good regulatory news potentially there is also plenty of baggage that comes along with it. As we see with everything in government today, there has to be a middle ground. Hopefully all egos can be kept in check and greater solutions can be found that protect the good while eliminating the bad. Simple, right?