Market Update for May 22 2013: Advocating in Washington for Our Clients

By chrisking • May 22nd, 2013

The last two years, the month of May has been one of my favorite months. Each May, the National Association of Realtors has its Legislative Week in Washington, D.C. As a Realtor and member of the Beverly Hills Greater Los Angeles Association of Realtors, I’ve been fortunate enough to travel to D.C. to participate. Over the course of three days, we meet with our members of Congress. We discuss an array of real estate related topics, and we seek their support on those issues. In previous years, the conversations have been more specific as more legislation has been circulating the Halls of Congress. This year, most of our conversations were theoretical. With Congress unable to reach consensus on whether or not to address comprehensive Budget Reform or comprehensive Tax Reform, there were no specific bills that the Realtors were either supporting or opposing.

Our conversations reiterated the importance of home ownership. And with me being a Mortgage Broker, I was particularly interested in two of our big three conceptual points: the importance of maintaining a vibrant secondary mortgage market (Fannie Mae and Freddie Mac) and the importance of FHA. Ironically, despite the fact that Fannie/Freddie/FHA have historically been money generators for the government, many of our Republican legislators consider these “entitlement” programs. One Representative from Texas who spoke to us, in fact, mentioned that before Congress he had been a Mortgage Broker. He stated confidently that without Fannie and Freddie, the private sector would step in and make the loans they are making. I was shocked by his comments, since he had supposedly been in the industry.

If private lending would step in without Fannie/Freddie, his point begs the question “why have private entities not already done so?” Further, private funds necessarily mean higher interest rates as a desire for higher profit without a government back-stop (Fannie/Freddie) becomes the main consideration of banks. And banks do not like to offer 30 or 15 year fixed mortgages. The reason is that a bank, when lending its own money, is locking up that amount of money at a guaranteed rate for a long period of time. This is risky for banks especially if they foresee rates rising. But it leaves consumers with Adjustable Rate Mortgages (ARMs), which are more risky for consumers. More risk for consumers means less investment in real estate.

Finally, the idea that Fannie/Freddie and FHA are “entitlement” programs is simply a false one and perpetuates misinformation. Fannie/Freddie are (historically) government supervised agencies that are funded with private capital! Banks who lend Fannie/Freddie money are required to invest in these entities, so that they have a stake in the system. Additionally, consumers like us can invest in Fannie Mae and Freddie Mac. These are traditionally relatively safe investments as the loans (Fannie and Freddie’s underlying investments) are secured by real estate. The week in Washington was a wonderful one. And it underscores the fact that we at CPK Mortgage serve our clients beyond their immediate mortgage needs. We believe it is our responsibility to be advocates: to stand up for the real estate industry to ensure the American dream of homeownership for our clients.

 

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