His administration released a 51-page report detailing rescue programs that are slowly being scaled back. But the Treasury Department, author of the report, noted that housing is one area where it's too early to exit.
Flash of the obvious that the USG won't be backing away from housing anytime soon. But there is a difference between making sure the mortgage market doesn't freeze up and the tremendous distortion of mortgage rates now being undertaken by the Fed. While one is USG policy and the other is the "non-political" (/sarcasm) Fed they are working in concert.
More from the article:
Over the past year, the government has intervened heavily at essentially every stage of the home-buying process. In fact, more than 80% of the new residential mortgage loans made this year benefited from some form of government support, according to the trade publication Inside Mortgage Finance.
As I understand it the MBS issuance part of the market is something like 97% government supported (according to a recently released GAO report). So you either fit the GSE/FHA guidelines or find a local bank whose guidelines that you can fit and they portfolio the loan. But the support is at every level, the Fed is buying $1.25 Trillion in MBS debt and $200 billion in short term GSE debt. This is causing rates to be ultra low. This confluence of Fed and Treasury policy along with political policy has completely been directed in keeping housing afloat. One certainly wishes they spent a tenth of the energy before the boom making sure this didn't happen instead of wasting all this energy once it happened trying to keep the dreaded DEFLATION from happening.
In regards to the expended "jumbo conforming" loan limits is will be of no surprise that no administration would ever allow these "temporary" loan limits to ever revert back to their previous levels. The political cover to raise the limits, and thus the risk to the GSE was that it was temporary. Anyone with any sort of sophistication at all knew the lie when it was being told. The loan limits have never gone down and the government has never done anything to support the housing market less. As the article states:
The government temporarily raised the size of the loans Fannie and Freddie can guarantee in February 2008 and is unlikely to ever return to previous levels. The higher levels have been extended once, and the mortgage industry is lobbying to keep them high.
And on the Feds role:
When the Fed buys up to $30 billion in mortgage securities every week, regardless of price, "it makes it very difficult for the market to find its own equilibrium," says Ajay Rajadhyaksha, head of U.S. fixed income research at Barclays. He said investors are trading in Treasury securities instead, pushing rates lower in that market, too.
The Fed is likely to decide to carry on buying until it reaches the $1.25 trillion target it set in March, and then taper off gradually. Some Fed officials will likely argue for stopping sooner, even as soon as next week's regular policy meeting.
If the Fed stops sooner than expected, it could jolt the mortgage market and short-circuit a housing recovery. Barclays's Mr. Rajadhyaksha estimates that even if the Fed carries on as planned, mortgage rates will rise by half to three-quarters of a percentage point, simply because the Fed will cease to be as a big a presence in the
Note they suggest that it is possible that the Fed will finish out the $1.25 trillion purchases this year then come up with a new level of printing money and "slowly" back away from the market. While MBS purchases may eventually wind down in the next year (I'm being optimistic) the short term GSE debt purchases I am sure will continue to keep them afloat.
It all boils down to continued long term heavy USG and Fed involvement. Like the traders in the MBS market who have backed away from purchasing MBS because of the massive Fed distortion, I wonder how a rational home buyer can enter the market now. They are either ignorant of the risks, don't care about the risks or are rich enough where it doesn't matter. People have to understand that the market "bottom" is predicated on 5% rates and supply being choked off while non-paying borrowers get a pass. You would have to be very confident of those two issues continuing for a significant time horizon or don't care you are throwing money away buying a home because you won't be able to sell it for what you owe later.
Also the hyperbole needs to end, literally everyone has assumed that if any of these programs get scaled backed or stopped the housing market ends. No, it doesn't end, prices just go down. Demand is there, if anything the housing boom has proven is that people want to buy homes and will go to great lengths to do so. Rates need to rise to a level commiserate with the risk being taken, then the private market will return to lending. Instead we have massive subsidies to the system. Prices need to fall to a level where local incomes support them at normal interest rates. We have some really hard choices to be made and time has passed and there is no evidence that they will be made. We just keep kicking the can down the road.