LEVERAGE AND THE FINANCIAL SYSTEM RICK TOBIN
Increasing
decreasing
mortgage
mortgage
rates
loan
then
leads
amounts
to
which
borrowers may qualify for when trying to acquire
real estate. As a result, home buyers or investors
may need to invest larger down payments in their
future real estate investments, since they will have
less leverage options at their disposal, or reduced
mortgage loan percentage options.
Leverage & Government Backed Mortgages
Over the past five (5) plus years, government
backed
or
insured
mortgages
have
rapidly
increased in percentages nationwide, partly due to
the weakening mortgage securities market. Once
Fannie Mae and Freddie Mac were bailed out by
the U.S. government and the FDIC almost
imploded themselves back in the Fall of 2008 after
We Need Better Capital Access
the Washington Mutual collapse (* the largest bank
collapse in U.S. history), then fewer private, nongovernmental backed or insured lenders were as
willing to make real estate loans (residential or
commercial). This was true partly since they did
not have very many secondary market investment
sources which may buy these same funded
mortgage loans from them at a later date.
As I have said for many years now, the number # 1
factor behind the various “Boom” and “Bust” real
estate cycles over the past several decades is
related to the supply of capital. How readily
available is the money today as compared with
back in 2005? Even though 2005’s interest rates
were higher than 2013’s interest rates, most people
would answer that it was much easier to qualify for
FHA, VA, USDA, Fannie Mae, and Freddie Mac
represented the bulk groups of government backed
a mortgage loan back in 2005 than today, in spite
of the higher interest rates back then.
or insured entities which were directly or indirectly
behind the funding of 97% of all U.S. residential
mortgage loans in recent years. Additionally, SBA
(Small Business Administration) and USDA (United
States Department of Agriculture) have stepped up
even more in recent years to help fund small to
very large commercial properties (i.e., Retail
shopping centers, hotels and motels, gas stations,
industrial, office buildings, etc.).
I keep hearing rumors of more private money
investors or investment groups interested in
creating their own secondary markets for new and
existing mortgage loans. If more secondary market
investors begin purchasing funded residential and
commercial mortgage loans, then private investors,
small banks, and even larger banks will have more
options to sell off their mortgage loans in bulk.