Executive Perspectives Blog
The last few months brought good news for the U.S. housing market: construction up, more home sales, and home value growth turning positive. This has been a big change from a year ago. Given that, what are our crystal ball predictions for housing in 2013?
Mortgage Rates Stay Low. Look for fixed-rate mortgage rates to remain near their 65-year record lows for the first half of 2013 then begin rising a bit in the tail end of next year, but staying below 4 percent. In the single-family market, this means homebuyer affordability should remain very high in 2013 for those with good credit history, stable income, and sufficient savings.
Since joining Freddie Mac a year ago, I’ve spoken to many people about our flagship Multifamily securitization program. Most people understand and accept the need for such a program in today’s commercial real estate market. However, I still get a few questions about the benefits of securitization for borrowers, investors, and the American taxpayer whose investment in Freddie Mac has helped stabilize the single-family and multifamily mortgage markets.
My response: securitization is the best vehicle we have for pairing our borrowers’ financing needs with the risk appetite and return requirements of a diverse group of capital markets investors. This allows us to offer our borrowers lower interest rates than traditional portfolio executions. In short, our securitization program is the best way to preserve taxpayer investment in Freddie Mac because it transfers risk away from the company while generating consistent profits.
The U.S. housing market is healing, but how will we know when it's actually "healthy"? Let's use an analogy and say the patient – in this case, the housing market – was running an alarmingly high fever of 103 degrees in 2006, at the height of the boom. The patient collapsed and, after a difficult period of convalescence, now seems to be getting better. Housing starts, sales, and prices are rising, delinquencies and foreclosure inventories are trending down. The question is: What does a national housing market look like at a healthy 98.6 degrees?
To deliver the right prognosis, we need to compare the current housing market to the years before the housing peak, but not the peak itself. Let's start by reviewing the latest data on the market's condition.
Freddie Mac Multifamily’s ability to promote liquidity and stability in the rental housing market is built on effective risk management. Credit discipline helps keep that foundation strong. If we make credit too tight, we risk inadequately supporting the rental markets that we were chartered to serve. Too loose, and we risk borrowers taking on mortgages that they can’t sustain. Striking the right balance benefits our customers, the housing market, and communities across the country as well as helps protect U.S. taxpayers’ investment in Freddie Mac.
That’s why Freddie Mac Multifamily strictly adheres to a core set of credit principles when deciding whether to purchase mortgages. Borrowers must have equity in the deal, strong understanding of the local market, and a proven record of performing well in all economic cycles. Also, the properties must be well maintained and deliver positive, sustainable cash flow. And loans must have a clear path to refinancing at maturity.
Can you spot the fraud in this rental ad? It looks like your typical Internet home-for-rent ad. This one happened to be on Craigslist and the fraud could cost an unwary renter thousands of dollars. Here’s the scam: the advertiser doesn’t own the house at the address. Freddie Mac does. It was never for rent and it’s scheduled to close next month. (Craigslist immediately pulled the ad after they were notified about the problem.)
Unfortunately, we’re hearing more reports about fraudsters trying to cash in on the housing crisis’s remaining foreclosed homes by advertising them as rentals on the Internet. It works like this. Once the house is sold at foreclosure, the fraudster posts an ad online and tries to rent it before it can be sold to a new owner. People contacting the fraudster about the ad are asked to submit their personal credit information as part of the lease application plus two month’s rent.
