The U.S. housing market holds the potential for unprecedented economic stimulus that would not require federal spending, they say Meredith Whitney, the unique “oracle “Wall Street” who predicted the great financial crisis.
While she recently warned of the dangers that “Crisis of the American Man“For the economy and the real estate market, Meredith Whitney Advisory Group CEO represents the opportunity that proposed mortgage market reform could represent.”
In one Column for the Financial Times On Friday, she noted that the mortgage financing giant Freddie Mac Last month, the U.S. government asked its regulator to enter the second-mortgage market, or home equity loans, which allows homeowners to borrow against the equity in their homes.
Such loans can be used for things like vacations, weddings, new cars, investments, medical bills, paying off debts, or starting a business. In other words, it’s more money that could drive the economy.
Freddie Mac is best known for its role in purchasing first mortgages, bundling them and selling them to investors as mortgage-backed securities. This allows lenders to remove these mortgages from their balance sheets and free up liquidity for further loans.
Allowing Freddie Mac to do this for home equity loans could put $1 trillion into consumers’ wallets as early as this summer and $2 trillion by the fall, Whitney estimated. If other mortgage giants Fannie Mae and Ginnie Mac, the potential economic stimulus could exceed $3 trillion, she added.
Their involvement in home loans came at a time when banks had dramatically reduced their involvement following the financial crisis. According to Whitney, outstanding home equity loans have fallen to $350 billion today from over $700 billion in 2007, just before the financial crisis. And real estate prices have actually risen by over 70% during this period.
“Freddie Mac’s proposal could change all that, and it couldn’t come at a better time,” she said. “Most people in the U.S. are feeling the pain of ongoing inflation, but older Americans living on fixed incomes have been hit particularly hard.”
She pointed to rising costs of home insurance and property taxes that are forcing older Americans to take on more debt. This leaves them vulnerable to unexpected expenses or other financial shocks.
While The labor market report for April fell short of expectations Other economic data suggests wage growth has cooled Consumer demand remained robust, thereby maintaining upward pressure on inflation. This suggests that now may not be the best time for more trillions of dollars in stimulus, especially as inflation remains stubbornly above the Federal Reserve’s 2 percent target.
Still, Whitney said expanding the ability to take out home equity loans would “provide a big boost to an economy and consumers that appear to be slowing, without adding a penny to the national debt.” Rarely do I have such a real win -Win scenario seen for the government, Wall Street and the US consumer.”