Meredith Whitney, the one-time “Oracle of Wall Street” who forecast the Great Financial Crisis, believes the US housing market has the potential for extraordinary economic stimulation that does not require any federal investment.
While she has lately warned of the threats that the “crisis of the American male” poses to the economy and the housing market, the CEO of Meredith Whitney Advisory Group has underlined the opportunities that a proposed mortgage market change may provide.
Vacations, weddings, new automobiles, investments, medical costs, debt repayment, and company start-ups are all possible uses for such loans. In other words, more money might boost the economy.
Freddie Mac is most recognised for its involvement in purchasing first-time mortgages, pooling them, and selling them to investors as mortgage-backed securities. This allows lenders to remove such mortgages from their balance sheets, freeing up money for new loans.
Allowing Freddie Mac to do this for home equity loans may result in $1 trillion in consumer spending as early as this summer and $2 trillion by the autumn, according to Whitney. If other mortgage giants like Fannie Mae and Ginnie Mac follow suit, the potential boost might exceed $3 trillion, she said.
Their role in home equity loans would come after banks reduced their participation during the financial crisis. According to Whitney, the number of outstanding home equity loans has dropped to $350 billion from more than $700 billion in 2007, right before the financial crisis. And that’s despite the fact that housing prices have increased by more than 70% over that time.
“The Freddie Mac proposal could change all that, and it could not come at a better time,” she went on to say. “Most people in the U.S. are feeling the sting of persistent inflation, but older Americans living on a fixed income have been hit particularly hard.”
She mentioned increased prices for homeowners insurance and property taxes as causing older Americans to incur further debt. This has made them exposed to unanticipated spending and other financial shocks.