“To suggest that there’s a large place for private financing in the future of housing finance is unrealistic,” Gross said at the meeting. “Government is part of our future. We need a government balance sheet. To suggest that the private market come back in is simply impractical. It won’t work.”
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He’s absolutely right. The private market won’t touch this with a ten-foot pole. Want to know why?
Because **housing prices are still too high** and there’s no reason to believe that the collateral can back the mortgages at these current prices. Also, they probably won’t be able to collect from the deadbeats in the event of another “foreclosure crisis” because they’ve been prevented, repeatedly, from foreclosing on the squatters during this “crisis.” Additionally, with interest rates at these low levels, there is way too much risk in lending money at 4-5% over 30 years when the Fed is determined to destroy the dollar.
There is a solution: Let asset prices drop to levels that are based on real fundamentals. Let interest rates rise to levels where risk is properly accounted for. Allow lenders who’ve made securitized loans follow what their contracts stipulate and let them foreclose on the deadbeats as soon as it’s warranted.
As soon as all these excesses are washed out, then private capital will step in. For as long as we’re living in this make-believe economy, private money will sit on the sidelines.
