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AllianceBernstein Fixed Income V.P. Matthew Bass and Mercatus Center Senior Scholar Anthony Sanders on the administration’s plan to sell foreclosed ...
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In one of the Obama administration's many housing initiatives.
The government looking to sell off about 2500.
Foreclosed homes owned by Fannie Mae to investors who will then convert them into rentals.
But will this help end the housing crisis joining me now Anthony Sanders -- -- news.
Data center and Matthew bass vice president of fixed income for Alliance Bernstein.
Thanks guys free of both common and I want -- start by reading you something Edward DeMarco.
The FHFA acting director had to say about this program he said.
This is another important milestone in our initiative designed to reduce taxpayer losses stabilize neighborhoods in home values.
Shift to more private management of properties and reduce the supply of foreclosed properties in the marketplace that -- -- -- will this make that happen.
I'm sure -- -- it its first -- not a silver bullet to solve all the problems housing their big issues that we're facing.
Tom what we're not gonna -- of a recovery in housing until we deal with the excess inventory of foreclosed homes and -- it will go -- through foreclosure.
To big problem it's gonna be close to six million homes and go through foreclosure over the next three to five years.
In this program.
Up to six million okay over the next 3000 I thought that's -- -- are at 66 million pounds 200 foreclosure you say this is part of that solution it's part of the solution so I think what this program does we need to bring private capital into the market to buy those homes to rent them out.
Two to take a lot of this inventory off the market.
This is a way for the government to partner with private investors to facilitate that on a larger scale today.
Let's Anthony Sanders in here we're making you sit here a long time.
Professor what do you make of this is this a way to get private investors take some of the burden off the government get some of these houses moving.
Well I agree that -- up to a point several milestone I would -- -- millstone.
Because what we just did was we said this number does the same technocrats in DC the created the housing bubble in the first place.
By pushing homeownership now suddenly they're saying.
But we've got a plan to not -- a free market solution.
But certainly not our plan is to.
Bulk sell loans to big investors and have them -- the property it.
Why not just sell them -- the free market like we normally do why do we have to go through this cock and bull -- -- type.
You know somebody is gonna get this is going to be kind of a big bidder cronyism type -- I'm happy I don't know any -- yeah I'm here.
And -- also with the reality is small investors are are buying homes right now they've been doing it down since that the housing peak and renting them out.
Fact Fannie Mae will provide financing up to ten homes for individual investors but.
I don't think small investor solve this problem alone should continue to do -- that's a great thing for the market but in order to clear this excess inventory.
We're gonna need the participation of large institutional -- are rightly that there professor jump in here.
Large investors they got the capital and do -- what's wrong with that.
The problem is is already in new extend them government guarantees to do this and why don't we just release and out of the free market so anyone -- -- on the properties.
I'm -- -- meant mentioned particular firms wiring you know what what -- huge vulture hedge funds come in and buy these things that steep discounts.
And then why -- we constraining it to rumble.
Why aren't the market make the world still any regulations -- -- open it up to the free market what's wrong with that well -- any investors could.
Participate.
In fact individual investors have been -- But -- just got done saying that they are not the ones with the muscle.
To actually.
Solve the problem to really get a lot of these foreclosures -- you need large institutional investors to make a difference the reality is over 4000 individuals.
Tom.
Got back to the FHFA when they put out and Arafat so there's a lot of interest your folks are raising capital.
They're being built their businesses that are actually being built around the single family rental model well and they have.
Maybe that's part of the problem here professor Sanders is that.
Their entire business models being built around this idea that the government's gonna get these houses to you -- steeply discounted rate.
And now -- the government has created a market where none existed before is that good or bad.
Well again we just went through an exercise for the government tried to pick a homeownership rate of -- say 70%.
And we almost blew up trying to see this now we're trying to pick a downscale rate which is saying now we're decided the optimal number of people who -- does this.
Why are we gonna stop this does -- the market picked us what we always put us.
-- they just suddenly interest rates are just selling these houses out right sure I mean one -- argue it's just rip the band -- off and take our medicine and I think the impact would be significant downside in home prices increased defaults.
Bank capital write downs which could have a very negative feedback -- -- the economy we've already -- negative feedback -- he can't tell -- there's more negative feedback -- that's worse than what we've already say one thing to point out I think the psychological let me answer my question no I mean isn't it true.
That we've already seen a ton of downside in the housing market.
Wouldn't make it wouldn't be any worse than what we've already seen if we ripped off the band -- certainly I think you can have a situation where home prices are down another ten to 20%.
All right professor quickly do you one of the things that you mentioned in your pre interview was that you felt like it might be -- friends of the president.
You might actually benefit -- So -- admit I agree with what he's Matthews saying in part on some on the small investors but as he pointed out.
There's gonna have to be a big group of people stepped down -- with capital.
That are gonna end and all those people bit.
-- very typical we've seen particularly this administration intends to be.
Friends of the administration and those tend to be the ones -- get the big deals so I'm not I I just I would this which would right past the process.
OK and let's look at -- that he would -- respond is a cylinder all over again are -- going to be.
Friends of President Obama who actually.
Get these deals and benefit from I think there should be broad participation.
-- the reality is there's a lot of interest in the ultimate investor's providing capital here.
Behind the asset management firms are pension funds so who really benefits here -- the -- Savers and the people with pension funds OK guys act interesting conversation really appreciate your help tonight Anthony and Matthew thank you so much.
Specter thank you.
