Tags: Bove | Fannie | Freddie | mortgage

Bove: Dumping Fannie, Freddie Would Mean Disaster for Housing, Economy

Tuesday, 03 Dec 2013 01:30 PM

By Dan Weil

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The Obama administration, along with many Republicans and Democrats in Congress, has called for the phase-out of mortgage agencies Fannie Mae and Freddie Mac, which are now in government conservatorship.

But such a move would spell doom for the housing sector and economy, star bank analyst Dick Bove, vice president of research at Rafferty Capital, tells CNBC and Yahoo's Talking Numbers.

"If Fannie and Freddie go away, what then happens to the mortgage markets?" he asks.

Editor’s Note:
5 Phases of a ‘Retirement Heist’ Exposed (See Video)

"The answer to that question is that we no longer have things like 20-year and 30-year mortgages, because banks are not going to put that type of mortgage on their balance sheets. And we won't have fixed-rate mortgages," Bove notes.

"I've called a number of very large banks — the largest issuers of mortgages in the United States — and asked them, 'If there was no Fannie and Freddie, what would be the typical mortgage in the United States?' And, the answer is a 10- to 15-year adjustable rate mortgage."

Jettisoning the two mortgage agencies would fundamentally shift U.S. housing policy, Bove contends.

"It is no longer the goal of the United States government that every household should have its own home. In my view, that's a call for a return of public housing and all of the ills that went with public housing."

The change would also mean a drop in the value of homes, which would curtail home equity loans and consumer spending, thereby hurting the economy, he says.

Some experts who favor recapitalizing Fannie and Freddie as new mortgage-bond guarantee agencies say other ideas won't satisfy White House policy desires.

"No one has suggested a workable alternative to recapitalize the mortgage-guarantee businesses of Fannie and Freddie as a responsible way to transition to the new system," Jim Millstein, a former Obama administration official, tells The Wall Street Journal.

Editor’s Note: 5 Phases of a ‘Retirement Heist’ Exposed (See Video)

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