| NEW YORK
NEW YORK Dec 12 The U.S. housing market is
improving but Washington must get serious about much-needed
reforms next year if it wants to sustain the nascent recovery,
BlackRock, the world's largest money manager, said on Wednesday.
With elections over, lawmakers have a rare window of
opportunity to simplify regulations and foreclosure guidelines,
define the role of the federal mortgage agencies that guarantee
most new home loans and attract private capital to the market,
said Barbara Novick, head of government relations at BlackRock,
which manages $3.67 trillion in assets.
"The political environment is conducive to change," she
said. "If they miss this window, they really miss it for a long
time. In 2014, there are elections for Congress. In 2015,
somebody's going to be running for president. So the sweet spot
The housing sector has become something of a bright spot
this year in an economy otherwise struggling to overcome weak
business confidence and falling demand from overseas.
Prices for single-family homes have risen continuously since
February, and economists expect home construction to add to
economic growth this year for the first time since 2005.
"Home prices are improving, inventory is declining; it's
reasonable to say U.S. housing is starting a recovery," Novick
But she added the recovery was still dependent on the
government, which she said owned between 15 and 25 percent of
all mortgage-backed securities. The Federal Reserve has been
buying $40 billion worth of mortgage bonds each month since
"Here's the problem: a lot of that government support is
unsustainable. At some point, we think that comes back down to
where it was, which is zero," she said. "That's a pretty big
difference, and it comes back to the need for capital and where
that capital comes from."
Convincing private investors to fill the gap will require
clearer rules about foreclosures and principal reductions for
the roughly 10 million "underwater" mortgages in which the
amount owed exceeds the current value of the house.
She also said there were too many competing government
programs to support housing. "There really isn't one overarching
goal or one agency in charge, and someone is going to have to
take the bull by the horns to get this resolved," she said,
adding that more clarity will "drive whether you will see
private securitization again."
Before the financial crisis, private investors played a
bigger role in mortgage financing by purchasing home loans made
by banks and then packaging into private mortgage-backed bonds.
This year, the vast majority of loans are owned or
guaranteed by Fannie Mae, Freddie Mac and
other public enterprises.
"You can't make securitization so unattractive if you also
want to reduce government-sponsored enterprise involvement,"
The GSEs should continue to exist but should be downsized,
have more conservative underwriting standards and should provide
government guarantees for a fee, Novick said.
She declined to comment on another possible risk to housing:
possible changes to the federal tax deduction on mortgage
The deduction is estimated to cost the Treasury about $100
billion a year and may be restricted by politicians looking for
ways to reduce the deficit without triggering $600 billion of
automatic tax hikes and spending cuts at year end.
Some investors said the market was strong enough to
withstand a cap on deductions.
"It could hurt coastal real estate, where prices are higher,
but I don't think they'll set that limit to hurt the middle
class," said Marc Doss, regional chief investment officer for
Wells Fargo Private Bank. "I think there's enough stimulus, with
mortgage rates where they are, that it won't derail housing."