Should Fannie & Freddie Ease Up On Their Requirements to Stimulate the Housing Market

And, while we're asking the question, how about FHA?

On CNBC today, that's what  Bill Gross, co-CEO of Pacific Investment Management Co. (Pimco) co-CEO of Pacific Investment Management Co. (Pimco) said. Basically, he believes that if Freddie & Fannie (ok, I through in FHA) relieve their down payment requirements it will allow "cash strapped consumers" (Mr. Gross's term) to get back into the housing market.

He has a little bit of a point. Regardless of how low interest rates are, if someone doesn't have the down payment and closing costs, they can't take advantage of the rates. In Mr. Gross's words: "So there needs to be some type of cautionary reduction in terms of down payments."

He feels that government should exert its control over Fannie & Freddie to influence lower down payment requirements. Of course, Barney Frank, who not that long ago blocked any attempts to raise Fannie & Freddie's requirements and flatly stated that they were sound, has now changed his mind and wants to disband Fannie & Freddie. Of course, he does want to replace them with an even larger government mortgage bureaucracy.

There may be some merit in Mr. Gross's proposal but I don't see that freeing up enough buyer's to save this market. Perhaps if that were coupled with true job growth the economy, and the housing market, might pick up.

Of course Gross is also looking for the administration to provide additional stimulus. He does not state what type of stimulus he means, however, he does say that any stimulus should actually be targeted towards infrastructure investment and even green energy, not the consumption based package that was passed 18 months ago.

Regardless, no matter how low the down payment requirements get, until credit gets a bit freer, any effects will be negligible. And credit isn't going to get much freer until we truly start gaining jobs in the private sector driving unemployment/underemployment down for reasons other than people just dropping out of the system.

Should Fannie & Freddie lower there down payment requirments? What else, if anything should they do?

You can read the CNBC article here.