FHLA to the Rescue
More good news from real the front lines of the housing crisis. With pressure from the U.S. Treasury, the financial board of the government-created association of Federal Home Loan Banks has agreed to double their resources for mortgage backed securities. The new rules announced allow an additional $100 billion of securities to be purchased and held by the FHLA. As reported by the Real Estate Journal:
“That could provide a substantial boost to the market, depending on the timing of the purchases. Fannie and Freddie are likely to sell about $500 billion of mortgage securities this year, assuming interest rates stay around current levels, says Jim Vogel, an analyst at FTN Financial Capital Markets of Memphis, Tenn. Mr. Vogel said it isn’t clear for now how eager the home-loan banks will be to buy these securities, but their ability to step up purchases gives at least a psychological boost to the market.”
So why is this so important? And how can I say that this is the real front lines of the mortgage crisis? It is important because while the FHLA is under no obligation to buy mortgage backed securities, they are certainly being encouraged to do so. If the FHLA does purchase more MBS’, that, in-turn will spur more interest in the mortgage bond market resulting in lower interest rates offered by the banks to the consumers. On the heels of the earlier news that Fannie and Freddie have been cleared to purchase greater amounts of MBS’, this is icing on the cake. The FHLBank System is the largest collective source of home mortgage/community credit in the United States according to the fine folks at Wikipedia. These types of financial press releases don’t grab the attention of dooms-dayers, and nay-sayers. Those types are too busy focusing on annual home-sales figures, and Year-over-Year data about the % of builders who order McDonald’s for lunch. While those numbers are important, the real focus should be on what the financial institutions backed by our government are doing. It is debatable whether or not the government should even be involved in any of these activities, or whether the government should perpetuate a broken system, but guess what? They are involved, and they are trying to help fix a broken system.
With the support from the government-supported entities, and a financial system that needs housing to stabilize, it is practically irrelevant how many homes are being foreclosed on your block. If the Mortgage Market (with a capital M) stabilizes at the Wall Street level, and housing prices continue to decline in the mortgage market (with a local lowercase m), then the buyers will return and gobble-up the glut of housing inventory.
Tags: community banks, mortgages, Real Estate Journal, real front lines
