The U.S. home loan system is broken. The U.S. Government has been virtually the sole provider of funding for home loans since private money fled the markets in the Crisis of 2008. If you are a home buyer today, the odds are 95% that your home loan will be bought by Freddie Mac, Fannie Mae, or the FHA. It will end up in a mortgage-backed security, snapped up by investors without concern for the foreclosure and short-sale plagued housing markets, because the security is thought to be backed by the full faith and credit of the U.S. Government.
This situation is, of course, untenable. The Federal Government is the sole financier of home lending in the United States as the result of a massive risk explosion that resulted from intrusion by that same government into the nation’s housing markets over a period of many years. The U.S. Treasury and the Department of Housing and Urban Development have stated they intend to restructure the nation’s home loan system, and to sharply reduce the operations of Freddie Mac and Fannie Mae. They recognize that the use of private capital for home loans and the purchase of mortgage-backed securities is fundamental, and plan to reduce the government footprint on housing finance.
Those actions will ultimately affect home prices, home buyers, and those who intend to build home equity for future financial security. The actions will also impact all who service the home markets: builders, construction businesses and employees, realtors and lenders. To the extent that the government relinquishes its domination of home lending, and when the housing markets have settled into whatever is their new normal, there is a possibility that the home loans with which we are so familiar may have changed forever. The huge losses suffered by lenders and investors in this decade will dictate that, and the realization will set in that sub-prime lending was just the straw that broke the camel’s back.
Alan Hillsdale skillfully builds his case for a sequence of government actions that are necessary to assure that the planned home loan system restructure has the best chance of success. His analysis of the root cause of the boom/bust home markets leads to a set of practical actions that he presents as a strategic plan. This is required reading for anyone who has an interest in, or a stake in, single family residence real estate.
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About the Author
Formulating solutions to the problems of the U.S. home loan system requires in-depth knowledge of mortgage banking, of organization and human systems analysis, and of planning. Hillsdale brings to the subject a strong practical background in those disciplines.
In his years with a major bank, in addition to senior operating assignments he headed strategic planning. He was involved in many organization and human systems initiatives, to which he brought analytical and decision-making skills as well as a problem-solver mentality.
As the long-term CEO of a bank with an active mortgage subsidiary, he provided oversight to an operation that sold $3 billion of home loans into the secondary market over a number of years, mostly to Freddie Mac and Fannie Mae. His involvement in the mortgage banking industry spanned various cycles in the home markets, giving him a first-hand perspective of the root cause of the immense pain being suffered by the banking industry from loans they have sold.
Hillsdale’s life training has given him an important skill, the ability to pick out kernels of hard truth from the blizzard of chaff that swirls in complex financial situations. Although he is no fan of big banks, Hillsdale blames government, or lack thereof, for the Crisis of 2008. He admires the adept manner in which politicians, with the help of the media, shifted blame for the Crisis of 2008 to the “big bad banks.” You will particularly enjoy his discussion of sub-prime credit and its place in financial history.