Article posted on 08/19/10
Posted by: "Burnie" Moore
Pimco Co-founder Gross Argues for Continued Government Involvement in Housing Finance
Bill Gross, Pimco co-founder and manager of the world's largest mutual fund, appeared at a conference held in Washington yesterday to discuss the future of housing finance, argued vehemently that the market needs Fannie Mae and Freddie Mac to recover. Gross said that private investors, without the governments involvement through the two mortgage giants, would be unwilling to own mortgages under current interest rates.
The Huffington Post reported Gross saying, "Without a government guarantee, mortgage rates would be hundreds -- hundreds -- of basis points higher, resulting in
a moribund housing market for years."
He went on to say that in order for private lenders to conduct business without government backing, they would be forced to require down payments of 30 percent or more. Gross' company, Pimco, does own plenty of Fannie Mae, Freddie Mac, and Ginnie Mae mortgage bonds, so he does have a vested interest in preserving the government's involvement in the industry.
Gross also called for the Administration 's endorsement of a major refinancing plan, in which the government would assume the risk involved with new loans for millions of struggling homeowners who would not otherwise qualify for a refinance. Talk about such a plan has been circulating on the internet for several weeks, and critics have said it would be contrary to the goal of moving housing finance away from government.