A positive sign: Profits for Fannie Mae, Freddie Mac

Adriene Hill Aug 8, 2012

A positive sign: Profits for Fannie Mae, Freddie Mac

Adriene Hill Aug 8, 2012

Kai Ryssdal: And let’s pause as we begin, to offer thanks for the rebound of the American housing market. OK, rebound is perhaps too strong a word. Let’s try: at least the bleeding has stopped.

Both Fannie Mae and Freddie Mac — the government controlled, taxpayer bailed-out mortgage firms — said this week they’re making money. They’re both gonna pay back some of the cash they borrowed from taxpayers. And, fingers crossed, help housing get at least part of the way back.

Marketplace’s Adriene Hill reports.

Adriene Hill: Freddie and Fannie nearly collapsed when the housing market tanked. Now, rising home prices are reintroducing black ink to the firms. And those rising prices might, just might, mark the beginning of a change in the mortgage market for consumers.

Right now:

Guy Cecela: One of the things we’re seeing are extremely tight mortgage underwriting standards out there.

Guy Cecela is the publisher of Inside Mortgage Finance.

Cecela: And that’s clearly keeping a lot of would-be home buyers and mortgage refinancers out of the marketplace.

Basically lenders freak when prices fall.

Ken Carow: Because they are taking on greater risk as your housing price declines.

Prof. Ken Carow teaches at the Kelley School of Business. But, he says, when housing prices go up, lenders shake off that fear and make more loans.

Carow: So that makes easier access for credit in the future.

Which means this could be — and I stress COULD — the beginning of what Professor Susan Wachter calls a “virtuous cycle” in the housing market. She teaches real estate and finance at Wharton.

Susan Wachter: With the fear fading, lenders come into the market, with more financing availalbity there are more loans that are closing, more homes that are purchased and prices rise.

And then, the cycle starts again, higher prices, more lenders, more loans, more buyers, higher prices.

And yes, higher prices can be good up to a point.

I’m Adriene Hill for Marketplace.

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