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$3 trillion could be injected into the U.S. economy without any federal spending by tweaking this corner of the mortgage market, ‘Oracle of Wall Street’ says


The U.S. housing market has the potential for unprecedented economic stimulus that would require no federal spending, he said Meredith “Whitney for once”inspiration Wall Street, which predicted the major financial crisis.

While it recently warned of the dangers posed by “The crisis of the American man“On the economy and the housing market, CEO of Meredith Whitney Advisory Group highlighted the opportunity that the proposed reform of the mortgage market could represent.

in Column L Financial Times She noted on Friday that the real estate financing giant Freddie Mac Its regulator last month required entry into the subprime mortgage market, or home equity loans, which allow homeowners to borrow against the equity in their homes.

This borrowing can be used for things like vacations, weddings, new cars, investments, medical bills, paying off debt, or starting a business. In other words, more money can support the economy.

Freddie Mac is best known for its role in purchasing first-time mortgages, bundling them together, and selling them to investors as mortgage-backed securities. This allows lenders to take those mortgages off their balance sheets, freeing up liquidity for more loans.

Allowing Freddie Mac to do that for home equity loans could start putting $1 trillion in consumers’ wallets as soon as this summer and $2 trillion by the fall, Whitney estimates. If his fellow mortgage giants Fannie Mae She added that the potential stimulus could reach $3 trillion, and Jenny Mac is tracking it.

Their participation in home equity loans comes at a time when banks have reduced their participation in the wake of the financial crisis. Home equity loans outstanding have fallen to $350 billion today from more than $700 billion in 2007, just before the financial crisis, according to Whitney. This is so that home prices rose by more than 70% in that period.

“Freddie Mac’s proposal could change all that, and it couldn’t come at a better time,” she said. “Most people in the United States are feeling the sting of persistent inflation, but older Americans living on fixed incomes have been particularly hard hit.”

She pointed to rising costs of homeowners insurance and property taxes, forcing older Americans to take on more debt. This made them vulnerable to unexpected expenses or other financial shocks.

While the April jobs report lower than expected Wage growth has slowed, as other economic data indicate Consumer demand remained strong, while maintaining upward pressure on inflation. This suggests that now may not be the best time for trillions of dollars more stimulus, especially since inflation has remained stubbornly above the Federal Reserve’s 2% target.

However, Whitney said expanding the ability to take advantage of home equity loans would provide “a huge stimulus to an economy and consumer that appears to be slowing without adding a dime to the government debt. Rarely have I seen such a true win-win scenario for the government.” Wall Street and the American consumer.

This story originally appeared on Fortune.com



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