Freddie Mac Chief Sees Tough Times Ahead
Staff writer David S. Hilzenrath filed this dispatch from his interview with Freddie Mac CEO Richard F. Syron:
The head of Freddie Mac has a bearish outlook for the housing market.
"I think on a national level the whole housing market has another year and a half of tough times ahead of it," Richard F. Syron, chairman and chief executive of the government-sponsored mortgage funding company, said in an interview Wednesday.
"I think it will get materially more severe," he said. "I think we'll probably see in real terms . . . housing prices will go down."
Syron, who has a doctorate in economics and once worked for Paul Volcker at the Federal Reserve, brings a special perspective to the topic: McLean-based Freddie Mac has about $712 billion of mortgage-related investments.
Freddie Mac is relatively insulated from the so-called subprime segment of the mortgage market in which many lenders have imploded, but it has funded unconventional loans such as those for which borrowers pay only interest for a time instead of paying down principal.
At the margins, problems have been creeping from the weaker segments of the market into the stronger ones, Syron said.
Syron said homeowners with steady incomes have many reasons to hold onto their houses even the real estate ends up being worth less than the mortgage.
Nonetheless, in the interview yesterday, Syron said a decline in home prices could have economic ripple effects.
"It will have, not catastrophic, but it will have a measurable impact on how people spend money. It will have a material impact on how people spend on cars, how they spend on consumer appliances, how they spend on lots of things."
Many household purchases are related to housing, and others are affected by the amount of equity people believe they have in their homes, Syron said.
"When they feel they're less rich, they're inclined to spend less money on discretionary items, which is inclined to have more of an effect on the economy as a whole," Syron said.
So far, there's no sign of calamity in the overall mortgage delinquency rates Freddie Mac reports. The percentage of Freddie Mac's single-family mortgages delinquent by 90 days or more was 0.49 percent in May, down from 0.54 percent in January.
However, Freddie Mac said last month that, based on an index the company compiles, seven states experienced price declines during the first quarter of 2007: California, Florida, Massachusetts, Michigan, New Hampshire, Nevada and West Virginia. In addition, Freddie Mac said, among large metropolitan areas, Boston, Detroit and San Francisco showed annual declines in home values.
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