The GSEs will become the ultra-super-SIV, and principal reductions will become the norm on GSE loans. IMHO, one of the reasons inventory has been kept off the market is because the PTB wanted housing prices high enough that borrowers can refi into GSE loans. I believe a good portion of the toxic loans now belongs to the GSEs, and they can now do what they’ve wanted to do, without the complications of multiple layers of investors in the private, securitized market.
IMHO, the PTB are not stupid. They know we cannot prop up the housing market forever; and forcing U.S. workers to continually overpay for housing will prevent us from competing with other countries with lower wages.
We need to allow for lower wages, and we cannot do that until we let housing prices fall to afordable levels (at these reduced wages).
IMHO, all the moratoriums, govt programs, inventory suppression, etc. were required to get as many private bank loans refinanced into publicly guaranteed or held loans (FHA or GSEs). They had to keep prices artificially inflated for political reasons — the prices had to drop AFTER the risks were already transferred, or the public would have been up in arms about making Goldman Sachs (or the public pensions) whole on the taxpayers’ dime. They needed to refi a $500K loan (from the private lenders) into a $500K (or $450K) loan (to the public lender), or else there would have been a public outcry.
Once they’ve done everything they can to save the banks, they will allow the housing market to fall again, IMHO. They’ve had over two years to work on this, and I believe they are near the end of their “risk-transfer” program.
This was never about saving Joe Sixpack. It was always about saving the banks.
Not sure why anyone would have ever questioned the existence of the “shadow inventory.” Where there’s smoke, there’s fire; and there was plenty of smoke.
