My Mortgage Blog

In a double surprise, the job market may at last have begun to revive, but the double-the-forecast, 243,000-job surge in January has done little harm to mortgages. We are still near 4.00%; 10-year T-notes up from 1.82%, but holding nicely at 1.95%.
     
Ordinarily a payroll jump like this would have killed us, especially in combination with strong results in the two ISM surveys for January: manufacturing to 54.1 from 53.1 in December, and service-sector way up to 56.8 from 52.6 last month. Some of the calm reaction in markets is suspicion -- few other data confirm a big economic turn. Europe is a continuing cause of deep anxiety, but quiet this week, nothing but the muffled clanking of picks and shovels in the bottom of its ever-deeper hole.
     
And housing hangs over everything in the US economy, all measures of prices in continuing decline through December. But, to his great credit, Mr. Obama devoted a speech this week to housing, including new proposals. "This housing crisis struck right at the heart of what it means to be middle class in America: our homes." Right!
     
The proposals will be without effect, but that's not Mr. Obama's fault. That two years have passed without proposals or priority or even mention, that is his fault, but give him full praise for saying out loud: "Hey, there's an elephant in this living room!" Why there are no effective proposals, and why it's beyond even the President's power to put them forward is a tale of human nature. We know perfectly well what to do, but several things in ourselves and our political process prevent action.
     
Federal housing finance agencies created in the Great Depression were by far the most effective aspect of the New Deal, perhaps more so than all the rest put together. Aside from restoration of credit, the miracle of government guarantee made mortgage lending easy as apple pie. Guarantee and uniform underwriting standards -- sound ones! -- made previously illiquid and expensive mortgages as easy to transfer as shares of stock, and cheap, long after the Depression was gone.
     
For good or ill, as early as the end of WW II our homes became the stores of our national household wealth. Got to put it someplace. Stock market guys would like it to be their market, but it has its own epic instability. Houses it was. The original stop-the-Depression charter of the mortgage agencies became ordinary everyday-everybody utilities. We let them bloat, 1985-2004, for the interest of their stockholders, an inherently unstable situation. Even before mortgage credit went bonkers, ca. 2002, and the push for home ownership ran beyond qualified candidates, the ease of mortgage finance had likely over-fed housing wealth.
     
Here in the aftermath of the Bubble it is convenient to have someone to blame for our pain. "Fannie and Freddie" have become curse words. Profanities. They were NOT responsible for the $2 trillion in toxic loans, but they are big, fat targets for the Right, hating all government, also oddly the agencies' boosters on the Left. Hell hath no fury like a social engineer scorned.
     
The truly culpable parties -- Wall Street bankers -- have made a clean getaway. John Dillinger and Clyde Barrow would still be in business if they had gone to Princeton, gotten MBAs, and learned to lie properly.
     
The result is self-inflicted paralysis. The plain-sight truth: for housing to recover we must re-activate Fannie. In a time of falling collateral value, private lenders cannot lend, and we must rely on government guarantee. That's as certain as the Pope's religion and behavior by bears in woods. However, reactivation is impossible without  leadership to explain what happened and what did not, and that rhetorical task might  be beyond FDR himself. In every financial crisis, senior bankers have been available to explain and structure recovery, but this time the bankers' conduct before, during, and after has been so without conscience that it may be another generation before financial-market Pooh-Bahs can earn back trust. If they tried, which they have not.
     
The politicians are prisoners of a homicidally angry people, and we're going to stay in this pickle until we get over it.

The turn in these ISM surveys may be even more important than the often-revised payroll survey.