The Big Short 2.0? | Melody Wright

Are $trillions of new loans about to be pumped into the housing market?

A few days ago, an article appeared in the Financial Times revealing that "Last month, the government-sponsored mortgage finance agency Freddie Mac filed a proposal with its regulator, the Federal Housing Finance Agency, to enter into the secondary mortgage market, otherwise known as home equity loans"

The article's author, Meredith Whitney, claims that if approved, this "could begin to unleash almost $1tn into consumers’ wallets. By the autumn, it could be on its way to $2tn."

That would be a tremendous stimulus to the economy.

But is it a good idea?

Putting aside for a moment concerns of its potential inflationary impact, the Global Financial Crisis was a credit crisis triggered by bad housing loans.

Would allowing the government-sponsored entities like Freddie Mac to unleash a flood of new loans risk repeating the sins of the past?

For answers, we're fortunate to turn to mortgage lending expert & housing analyst Melody Wright. Melody, who was on the frontlines of the meltdown in mortgages during the GFC, is highly concerned this new lending scheme, if enacted, will end up disastrously.

To learn why, click here or on the image below:

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Adam’s Notes: Melody Wright (recorded 5.7.24)

• Melody thinks Freddie Mac's proposal to enter the secondary mortgage market for home equity loans would be a dangerously bad idea.

• Over 8 million people have experienced untracked equity withdrawals through COVID-19 forbearance programs, where deferred payments were turned into non-interest-bearing liens added on to the back end of their mortgages, surprising homeowners during sales or loan payoffs that they owed more than they realized. This means many current homeowners have less home equity than they think.

• Government-held mortgages have surged post-2008. Today, over 85% of mortgage originations are now government-held, primarily through Fannie Mae, Freddie Mac, and Ginnie Mae, compared to a more significant private market presence before the crisis. Like it or not, we are now a nation of borrowers from the government for our shelter.

• Melody expresses concern that Freddie Mac’s venture into home equity loans could exacerbate homeowner over-leverage and potentially lead to a credit crunch similar to 2008, highlighting risks such as