Saturday, May 1, 2010

The Government Probably Owns Your Home

The U.S. government's massive share of the nation's mortgage market grew even larger during the first quarter.
Government-related entities backed 96.5% of all home loans during the first quarter, up from 90% in 2009, according to Inside Mortgage Finance. The increase was driven by a jump in the share of loans backed by Fannie Mae and Freddie Mac, the government-owned housing-finance giants.
By providing a steady source of liquidity to the mortgage market, the government has helped housing markets to stabilize. However, "Fannie and Freddie have to get smaller and less relevant in order to revamp them, and instead, every day they're getting bigger and bigger and bigger," said Paul Bossidy, chief executive of Clayton Holdings LLC, a mortgage analytics firm.
The collapse of the mortgage market in 2007 steered more business to the Federal Housing Administration, which insures loans, and Fannie and Freddie, which were taken over by the government in 2008 as rising losses wiped out thin capital reserves. Congress also increased the limits on the size of loans that Fannie, Freddie and the FHA can guarantee, raising the ceiling to as high as $729,750 in high-cost housing markets such as New York and California.
Over the past year, rates on those "conforming-jumbo" loans have improved, and more banks have stepped up their offerings, helping to boost the government's already hefty share of the mortgage market, said Guy Cecala, publisher of Inside Mortgage Finance. By the end of 2009, the share of jumbo loans that were sold or backed by government entities exceeded the non-government jumbo share of the market.
Some big banks say they are beginning to increase their holdings of jumbo mortgages that are too large for government backing on their balance sheets. And last month, Redwood Trust Inc. said it planned to issue around $222 million in bonds backed by jumbo mortgage loans made by a unit of Citigroup Inc., the first such issue of private-label securities in nearly two years.
Sanjiv Das, chief executive of Citigroup's mortgage-lending unit, said he expected the government's share of the mortgage market to change "substantially" over the next year. "A year from now, I wouldn't be surprised if that number is eight out of 10, as opposed to 9.5 out of 10," he said. Reducing the government loan limits, he said, would drop the government's share of the market even more.
Meanwhile, Freddie Mac on Friday said that the number of mortgages that were 90 days or more past due fell to 4.13% in March from 4.2% in February, the first monthly decline in three years.
But analysts aren't ready to declare victory yet. "We're certainly going to reach a point of stability this year, but it's going to be stabilizing at these very high levels," said Ted Jadlos, president of LPS Applied Analytics, a real-estate research firm. The backlog of delinquent loans in some stage of foreclosure will keep pressure on housing markets and could take two to four years to clear, he said.

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