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Sal Aranda: America needs an affordable, regulated secondary market

Real Estate Talk

Posted: March 17, 2011 1:55 a.m.
Updated: March 17, 2011 1:55 a.m.
 

This is the first of what will be a biweekly column on issues important to Santa Clarita homeowners and prospective homebuyers. We thank The Signal for this opportunity and welcome comments and suggestions on topics of interest to residents of the Santa Clarita Valley.

An issue of vital importance to prospective homebuyers locally and nationwide is how we’re going to finance purchases in the new market that is emerging from the wake of the Great Recession.

That’s why Realtors welcome calls for an orderly transition from the current form of the secondary-mortgage market to a new structure that would enable Americans to achieve affordable, sustainable mortgages.

The secondary-mortgage market allows banks to sell mortgages, giving them new funds to offer more mortgages to new borrowers. Without the secondary market, lenders would soon use up all their funds, making it more difficult and more costly for potential homebuyers to obtain a loan.

“We cannot have a restoration of the former secondary mortgage market with entities that took private profits while pushing losses onto the taxpayer,” said Ron Phipps, president of the National Association of Realtors. “The new system must involve some government presence, to ensure a continued flow of capital to housing markets during economic downturns when large lenders flee the housing market.”

Phipps’ comments were in response to a plan released earlier this year by the Obama administration for reforming the housing finance market.

“As the leading advocate for home ownership, NAR recognizes that the existing system failed and that changes are needed to protect taxpayers from an open-ended bailout,” Phipps said.

“We believe there must be a certain level of government participation to provide middle-class families access to affordable mortgages at all times and in all markets.”

A system that is dominated by a few large banks that are “too big to fail” would inevitably involve huge taxpayer risk of another bailout.

Realtors believe that the size of the government’s participation in housing finance should decrease if the market is to function properly, but notes that when private capital fled the marketplace during the recent financial crisis, government backing of residential mortgages was critical in sustaining the housing market.

“Without government support, the financial crisis could have been far worse,” Phipps said. NAR’s economists estimate that a retreat of capital from the housing market will negatively impact the economy because of the simple fact that for every 1,000 home sales, 500 jobs are created.

NAR encourages private-sector participation in less traditional mortgages in innovative ways, such as through covered bonds. However, Realtors oppose raising fees for current well-qualified consumers to cover losses stemming from mistakes made in the past private business decisions of Fannie Mae and Freddie Mac.

Reducing the government’s involvement in the mortgage finance market is necessary for a healthy market, but it should not be done at the expense of the economy or at the expense of homebuyers.

“Any proposal for increasing fees and borrowing costs beyond actuarially sound levels will only make it harder for working, middle-class individuals to achieve home ownership, and only the wealthy will be able to achieve the American dream,” Phipps said.

Sal Aranda is president of the Santa Clarita Valley Division of the Southland Regional Association of Realtors. David Walker of Walker Associates co-authors articles for SRAR. Send comments via e-mail to DavidW@srar.com. This column represents SRAR’s views and not necessarily those of The Signal. The column contains general information about the real estate market and is not intended to replace advice from your Realtor or other realty related professionals.

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