Meredith Whitney, the “Wall Street oracle” who once predicted the Great Financial Crisis, says the U.S. housing market has the potential for unprecedented economic stimulus that doesn't require federal spending.
The CEO of Meredith Whitney Advisory Group recently warned of the dangers the “American male crisis” poses to the economy and housing market, but he also warned that proposed reforms to the mortgage market could pose a threat. Emphasized opportunities.
In the column of financial times He noted Friday that mortgage lender Freddie Mac last month asked regulators to enter the second mortgage market, or home equity loans, where homeowners can borrow against the equity in their homes. .
Such loans can be used for vacations, weddings, new cars, investments, medical expenses, paying off debt, starting a business, and more. In other words, more money can move the economy.
Freddie Mac is best known for its role in purchasing first-time mortgages, pooling them, and selling them to investors as mortgage-backed securities. This allows lenders to remove these mortgages from their balance sheets, freeing up liquidity to make more loans.
If Freddie Mac were to do this with home equity loans, Whitney estimates $1 trillion could start arriving in consumers' wallets as early as this summer, and $2 trillion by fall. did. If fellow mortgage giants Fannie Mae and Ginnie Mac follow suit, the potential stimulus could exceed $3 trillion, he added.
They will be participating in home equity loans because banks have reduced their participation in the wake of the financial crisis. Home equity loan balances have plummeted from more than $700 billion in 2007, just before the financial crisis, to $350 billion today, Whitney said. And home prices have soared by more than 70% during that time.
“Freddie Mac's proposal could change everything, and it couldn't come at a better time,” she said. “While most Americans are feeling the pain of prolonged inflation, older Americans living on fixed incomes have been hit especially hard.”
He noted that the cost of homeowners insurance and property taxes will rise, forcing older Americans to take on more debt. This leaves them vulnerable to unexpected expenses and other financial shocks.
Although April's weaker-than-expected jobs report showed a slowdown in wage growth, other economic indicators show that consumer demand remains strong and inflation pressures continue. This suggests that now may not be the best time for trillions of dollars in additional stimulus, especially as inflation remains stubbornly above the Federal Reserve's 2% target. are doing.
Still, Whitney said expanding the ability to use home equity loans “would provide a significant stimulus to an economy and consumers that appear to be slowing, without adding a penny to the government's debt.” I have never seen such a true win-win scenario for the government. , Wall Street and the U.S. Consumer. ”
This article originally appeared on Fortune.com
