Rest assured the housing market slump will turn around. It has to, not only for people who purchase real estate, but also for mortgage lenders whose livelihood and businesses depend upon it. Not only that, the nation’s economy needs a rebound in order to stabilize. Based on that, a group representing the buyers and sellers of mortgage backed securities unveiled a plan on Wednesday to recharge the declining housing market.
Just to give you a little background, here’s how mortgage lenders have handled real estate loans up till now; most of the nation’s mortgage loans are packaged together by their issuers – such as Countrywide, Wells Fargo and Wachovia and they in turn sell theses loans to investors as mortgage backed securities. That’s how mortgage lenders raise more money to make more loans. Now, when the housing market is booming, these practices help everybody, which includes homeowners who purchase real estate.
However, once the housing market began to crash, losses in these investments began to pile up. This caused individuals and institutions like pension funds, hedge funds, insurance companies and banks to stop buying these pools of residential mortgages from mortgage lenders. That left lenders cash-strapped, and made it harder for home buyers to get loans. So you can see how the trend began, and how it became a vicious cycle. The real estate market has always relayed upon all kinds of investments, but as you can see, once one begins to falter, the rest follows; it’s like a house of cards.
But now the American Securitization Forum hopes its plan, Project RESTART, will increase the supply of mortgage loans available to borrowers and help to lower the costs incurred by mortgage lenders in these trying time in the housing market. Now, once the mortgage lenders are in a better position in the real estate market, so too will follow home buyers and home sellers. The goal of Project Restart is to build up confidence in the people who invest in these securities.
This plan, if it works, couldn’t come at a better time for the housing market, as people in the real estate industry are starting to question the fiscal health of mortgage lenders Fannie Mae and Freddie Mac, especially when you consider the fact that Fannie Mae and Freddie Mac have provided the majority of mortgage funding over the past year or so. This plan aims to revive the segment of the secondary market that trades in mortgages that are not backed by the two mortgage giants.
Here’s what this plan will try and accomplish; it will try and clear up the details of these funds, for the people who are investing in them. This transparency will help the investors better understand the risks involved and potential benefits from individual pools and help them judge their pricing more accurately, which they hope will encourage them to continue buying these securities. Not only will this help investors make more money, it will help mortgage lenders stay afloat, which in turn will boost the housing market and real estate industry back up.
Initially the focus will be on residential mortgages of all types, jumbo, prime, Alt-A and subprime. So if the plan works, mortgage lenders would be able to give out loans to people looking to get into the housing market on both ends of the spectrum; upper-end and those in the higher-risk categories. Keep in mind, these people all want to make money, and the real estate industry has always been a good investment, even with all its ups and downs. That means the more people who can get into the housing market the better for them and their pocketbooks.
I know it’s a scary time out there for people. There are sellers who are desperate to get out of their current real estate without taking a loss and there are buyers who want nothing more than to move their families into their own homes. Combine that with the real estate industry’s desperation to stay afloat and the government’s desire to keep this country out of a major recession, and you have a recipe for a rebound in the housing market. Keep your chins up, I have no doubt things will begin to level off and sooner rather than later.