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Alliance Bernstein's Matthew Bass discusses a Fannie Mae pilot program that aims to help stabilize the housing market by selling swaths of foreclosed ...
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Troubled mortgage giant Fannie Mae is planning a pilot program to sell -- when he 500 foreclosed homes.
In bulk to investors.
Who in turn would be required to rent -- the properties.
But will this initiative to help the housing market -- well the bulk buying a foreclosed properties set up a whole new speculative frenzy.
Matthew -- and vice president of fixed income an Alliance Bernstein is here to talk about the program and give us his take on how it'll affect the housing market.
Not -- you great to see you great to see you thanks for having sort so can you just talk to me a little bit about the program.
And why you think it could be an important step -- so one of the the big problems facing the housing market right now.
Is this supply of access.
For close towns and homes that will go through fourth through the -- foreclosure process.
So there about six million homes right now that are either in foreclosure or -- the borrower is in some stated default.
So that's an amount of homes and alternately transition and hit the market and -- pressure on supply so with this program does.
It's a mechanism where by the federal government can attract private capital to absorb some of that excess supply.
And I think while not a silver bullet on it can be -- good start towards helping the housing market recovers support recovery.
So how many homes are in foreclosure right now.
-- right now they're about two million homes in foreclosure.
And another four million homes or borrowers that are are not current on their mortgage.
So that compares to about 52 million mortgages in the United States so.
To staggering number about 12%.
Of mortgages -- -- in foreclosure or in default so according to Reuters.
Foreclosures shot up 28%.
In January do you think that that is a sign of what's to come.
I I I -- who sued the pace of foreclosure activity has actually been relatively slow for the past couple years.
Tom but we believe that's gonna pick up so.
You know right now investors.
Single investors have been buying properties up hum from Fannie Mae from Freddie Mac and renting them out.
And and I think that should continue it will continue but.
As a piece of foreclosures increases.
You really need to have sizeable or more sizable institutional capital.
-- to be able to come in and buy -- some of these properties.
But -- already by half the properties now I mean what is the point of having this program chair so bomb.
The government through Fannie Mae and Freddie Mac.
Control about how off of the homes that are currently.
In our EO.
Real estate owned arms to these are homes that have gone through foreclosure and are waiting to be sold.
So it's logical that if you want to start a big program and make an impact.
Being able to start with those -- government agencies that own a lot of this inventory.
Could help institutionalized.
The process and down and you know I think if implemented properly.
Banks could use it as a template to dispose of some of their property.
Okay and is this available to every one or is it.
Just for investors big investors.
No armed individual investors can participate as well.
And I think it it's it's critical when the programs designed that -- -- participation is open for investors of all sizes because I think we're gonna need a lot of help solve the problem.
I mean can mom and pop investors also be a part of it.
I'm they cannon and they have been -- so mom and pop investors.
Have been buying homes Saddam and reading amount.
And in fact they could borrow from Fannie Mae -- up to ten properties.
Right now.
Okay.
And you know we've seen what some say -- pretty disastrous results from the government coming in influencing the housing market.
Do you think that this is going to be another one of those instances.
Yes the government's done a lot in housing I think the key difference between this program in the other initiatives is the fact that it's not just the government.
It's a government partnering with private investors that are making their own decisions.
Based on.
Attractive investment opportunity so.
The fact that that you're bringing in private capital I think -- this fundamentally different than some of the other government program.
And many are seeing this bulk buying you know this new bulk buying as a huge opportunity.
But do you see it as a disaster in the making if people become kind of too zealous -- You know you -- you never know how how the pendulum swung very far in one direction that it could just go back.
I'm I think it is you step back that the problem is enormous in terms of the the amount of homes and -- have to be liquidated so.
I think it's it's the government structures a program appropriately.
Thumb and investors are making an imprudent decisions in terms of of what they're paying.
And what they're -- these homes out that it be can be.
Successful and now this program this pilot program is pretty small I mean it's only 2500.
Foreclosed homes and the host the homes are already rented.
So why so small why have it be houses are already being -- -- it's a really good point I think what what Fannie -- trying to do for their first transaction is to house.
-- very easy collateral for investors to understand and value and if they're dirty brands in place it's a lot easier to -- the last thing you wanna do is to have a transaction.
That is not successful.
-- because -- if this is a success there's a lot more to come after so I think they're trying to ensure that.
So what do you think the housing market what do you think the outlook is the next 35 years out.
Sure so -- I I think there's still some downside in home prices so we think home prices can be down another three to 5%.
Nationwide but in the next year and that it's in the next year and then probably some stabilization there after.
Tom what's really important understand now is how local the housing market is so for example some markets in.
The midwest or or Florida for example Tom sort of more declines ahead of them.
-- -- some other markets in in Texas for example or reports of California are actually starting to recover and you see prices going up.
-- that the path of home prices is really a function of the amount of inventory.
Distressed inventory foreclosed homes that that creates the -- so the less inventory.
Tom deed the less resistance.
To home prices increase Matthew -- thank you so much for coming in I appreciate it thanks for having.
