Housing to Blame!

Independent Films, Web Series, Politics

Is Housing most responsible for financial crisis just experienced? Housing, in my opinion, was following rather than leading factor in "financial Bubble" formation and subsequent collapse, even if in end mortgage market collapse had immense impact due to size of housing/mortgage market.

IMF is recommending that nations adopt more demanding mortgage loan underwriting standards and also elimination of Fannie Mae and Fredie Mac. Think this is both dangerous for American political model and undermines economic opportunity and American dream.

a new study, the International Monetary Fund is recommending that mortgage lenders go back to basics when evaluating loan applications. The IMF says that the global economic crisis revealed the dangers of easy lending practices.

“Regulation and supervision of mortgage lenders needs to be much better. In the run-up to the crisis, it was relaxed lending standards and abundant liquidity which led to very high credit growth. This in turn spurred the house-price boom that later ended in a bust. Mortgage lenders need to go back to basics. They need to focus not only on the value of the property, but also on the credit worthiness of the borrower. Banks and other lending institutions need to better manage risks and the standards that they apply when they approve mortgages,” said the study’s author Ann-Margret Westin.

The IMF study also determined that instead of helping, government involvement in the housing market may have been a factor in the sub-prime lending crisis.

“Our study found that countries with more government involvement in housing finance experienced deeper house price declines than countries with less government involvement. This is probably a reflection of the lower cost of credit due to government subsidies and also relaxed lending standards as the private sector was trying to compete with the government. These credit conditions in turn helped spur the house-price boom that we saw that later ended in a bust. Government involvement in housing markets needs to be carefully considered to avoid contributing to financial instability,” Westin said.

As the US government is planning to wind down government-sponsored Fannie Mae and Freddie Mac, the IMF study has found that a first step will be to make sure government guarantees for mortgages are explicit and fully accounted for.

“Prior to the crisis, Fannie Mae and Freddie Mac's products were assumed to be implicitly guaranteed by the U.S. government. In the foreseeable future, there is probably still a need for government guarantees for mortgage securitization in the United States. These guarantees though need to be explicit and fully accounted for on the government's balance sheet. In the medium-term and with reforms to promote safe securitization of residential mortgages by private entities, Fannie Mae and Freddie Mac should be closed down. Such reforms would have a significant positive impact on the U.S. financial system. It would also bolster global financial stability,” Westin said.

Directors:

• Muhamed Sacirbey UNTV-IMF

Producers:

• Susan Sacirbey