DIY Home Improvement

The International Monetary Fund (IMF) warns that “the backlog of foreclosures and high levels of negative equity, combined with elevated unemployment, pose risks of a double dip in housing.”  further support for foreclosure mitigation under the existing framework may be needed if the housing market were to weaken,” IMF wrote, adding that a worst-case scenario may include reconsideration of mortgage cram-downs within bankruptcy.  The IMF noted that recent reform legislation emphasizes a return to “safe securitization” of assets like mortgages through greater oversight and accountability for ratings agencies, more transparency of the assets, greater emphasis on investor due diligence and “skin in the game” for originators. 

“Given the large role that securitization played in the past, and the potential limits to bank balance sheets for creating credit, speedy implementation of these measures would be essential to avoid limits on credit supply that could crimp the recovery,” IMF said. “It will also be important to coordinate reforms domestically and internationally to ensure safe securitization and promote a level playing field.”  In the meantime, the housing finance system remains “costly, inefficient and complex,” according to the note.  The IMF also recommended a clarification of government-sponsored enterprise (GSE) mandates and a privatization of their retained portfolios. Fannie Mae and Freddie Mac’s core bundling and guarantee business lines “should be made explicitly public,” the IMF said.

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