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Live from the Global Conference: Few easy answers for woes of U.S. housing market

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Modern Money

While other sectors are enjoying a resurgence, the housing market remains stagnant. The “Fixing the U.S. Housing Market” panel at the Milken Institute Global Conference touched on some of the underlying issues restraining the housing market, but few were solutions in the offing.

  • Jared Bernstein, chief economist and economic adviser to Vice President Joe Biden, began the discussion by acknowledging proposals that call for reforming Fannie Mae and Freddie Mac and that would end the 30-year fixed-rate mortgage. Bernstein made it clear that he is not necessarily for or against such proposals but that he sees potential hurdles. “Absent the government guarantee, it’s not easy to have a 30-year fixed-rate mortgage. … Can the private sector deliver that kind of tool with no government guarantee?” Bernstein said.
  • Lewis Ranieri, a pioneer in developing mortgage-backed securities as a source of funding housing and commercial real estate, said Fannie and Freddie would have to remain involved in housing finance. “I don’t think it is realistic to say no government.” Ranieri added that it would be an ideal – albeit aggressive – goal for the government-sponsored enterprises to diminish to 50% their role in financing the market.
  • On the topic of subprime loans, Ranieri insisted that the loans are not necessarily a poor tool but one that was abused in the build-up to the financial crisis. “The Federal Housing Administration made subprime loans for 40 years without blowing up!”
  • David Zervos, managing director and chief market strategist at Jefferies, lamented the structure of most home loans. That structure, Zervos said, has prevented U.S. homeowners — and consumers —  from enjoying the same relief that banks, companies and even homeowners in many other countries have seen as interest rates declined. “We had the greatest monetary easing in the history of the Federal Reserve, and Mom and Pop got a doughnut.”

Watch a video of the panel.