The U.S. Treasury has plans to phase out mortgage agencies Fannie Mae and Freddie Mac by 2018, but that would cause a major problem, says ace equity analyst Dick Bove of Rafferty Capital Markets.
The problem: bye-bye 30-year fixed mortgages, he told CNBC.
Without Fannie and Freddie around to purchase the loans, other buyers would be reluctant to opt for the 30-year paper and banks would be reluctant to issue it.
This would throw quite a wrench into the housing market, Bove says. "Is the United States ready to take a shock to housing prices because we're getting rid of 30-year fixed rate mortgages?" he said.
Banks have told him privately that they can no longer earn profits on 30-year fixed-rate mortgages, thanks to stricter rules on capital requirements and securitizing mortgages. So they want to make loans they can sell to Fannie and Freddie.
"The question becomes, 'Who's going to buy these mortgages?' And if we're talking about 30-year fixed rate mortgages, which are yielding less than 4 percent, who's going to be crazy enough to buy or put [them] on their balance sheet?" Bove asked.
Meanwhile, existing home sales plunged 4.9 percent last month from December to a 4.82 million annualized rate, the lowest since April, according to the National Association of Realtors.
The drop came as the median cost of an existing home rose 6.2 percent from January 2014, as market inventory dropped. Potential buyers apparently balked at higher prices.
"We’re starting to see big concerns about pricing and affordability," Jacob Oubina, a senior economist at RBC Capital Markets, told Bloomberg.
"Folks are finding out they are priced out of the market."
Some experts reacted more positively to news that the S&P/Case-Shiller home price index rose 4.5 percent last year.
"If you continue to bounce around here in the 4.5 percent range for some time, that’s a good, healthy pace," Tom Simons, an economist at Jefferies told Bloomberg.
"That’s enough to keep people that are in the market happy and not enough to keep people out of the market."
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