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Mortgage Programs Drying Up Like 2008, But For Completely Different Reasons

Friday, July 10, 2020   /   by Erik Bjorklund

Mortgage Programs Drying Up Like 2008, But For Completely Different Reasons

A paper written
for the Joint Center on Housing Studies at Harvard University focuses on the
causes and effects of mortgage credit tightening in the current COVID-crisis.
The author, Don Layton, is a former CEO of Freddie Mac and a Senior Industry
Fellow at the Center. One of the biggest pandemic-related
issues to emerge in housing finance is the availability of credit. Tightening is
being discussed as a major problem, perhaps on a par with the last financial
crisis. The implication seems to be that much if not all of that tightening is
illegitimate, a failure of government policy
that could be avoided with the
right actions that do not require subsidies for small business or specific
industries. Layton questions this view and examines how mortgages are made
today and who sets the credit standards.   The complex structure of mortgage
financing that has emerged over the last 60 years has three key impacts that
are related to and must be taken into account when trying to reduce unnecessary
credit tightening. First, strong stress liquidity is due solely to government
support. Second, government agencies are now arbiters of acceptable credit, and
third, intermediaries have become a major market force. Further, he says only
one of these was clearly intended by the original policymakers.


...(read more)

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