Here’s editor Adrian Van Eck– who I’ve followed for many years – on the the latest news out of the housing market:

A wonderful example of the new positive thinking breaking out in U.S. real estate and mortgage banking can be seen in Tuesday’s call by the U.S. mortgage bankers association for the Federal Housing Finance Agency to boost the limit for Fannie Mae and Freddie Mac purchases or guarantees to $625,500, helping strengthen the housing market.  This would increase the current guarantee by 50% from the $417,000 current limit on purchases or guarantees.  It will, if accepted, offer a giant boost to the upper-middle single-family housing, including many McMansions.

Congress actually okayed mortgage loans bigger than $625,000 as part of the Housing and Economic Recovery Act passed in July.  But that limit was declared to be temporary, and as such it never really was taken seriously by lenders, realtors and would-be home buyers.  But the new proposal by the mortgage bankers is cut from a different bolt of cloth.  It would be permanent and thus more likely to affect both near-term thinking and long-term planning.  Garry Cipponeri, Senior Vice President of Chase Home Finance LLC of New Jersey, says this of the proposed permanent hike in the mortgage cap to $625,000:  “It will be stimulative.  This market needs liquidity.”

When the Federal Government took control of Fannie Mae and Freddie Mac the purpose was to save the stimulate housing.  So far the bulk of attention appears to have been directed to save the banking and mortgage industry.  Billions of dollars of what are called toxic loans are slated for purchase to help clean up the balance sheets of some very poorly managed banks.  But we hear remarkably little talk about taking steps that would open the spigots of big and small lenders.

Yet we have shown that Americans have piled up several trillions of dollars in savings under the low Bush tax rates on upper incomes.  Note that I said trillions of dollars and not billions.  The media, in its determination to swing the presidential election, has pumped fear into the public mind, making people believe that we may be about to plunge over a precipice into a new Great Depression.  That is so far removed from reality that I choose to focus on facts and not on fancy.  I believe that once the election is over the media will reveal the true story.

I can tell you right now what some of the financial analysts who love to get their faces on TV may be getting ready to say in a few weeks.  They will note that we have been concentrating far too much on what is a quite minor story and have largely ignored a set of major facts that are actually impressive.  To talk of a depression is nonsense, they will suddenly announce.  Unemployment is only about a fifth of the rate in 1933.  The mortgage banking industry then was faced with a total collapse of home ownership.  Not so today.  Numbers coming this week out of the mortgage bankers at their annual conference in San Francisco shows that only 2.5% of homes have been foreclosed.

Half of those involved were people that had no business buying a home in the first place.  They signed up at a time when loans were made either with no supporting numbers of with no checking of numbers supplied.  A lot of lying took place.  A deliberate effort, pushed by politicians, signed up many people living in public housing.  They had never paid rent.  Their rent was covered with a government voucher.  Apparently they thought the state would do the same for their mortgage payments.  When bankers have tried to rewrite their mortgages, 80% of these people have been foreclosed a second time.  Once the elections are over some of them will likely be returned to the security of public housing.  Incidentally, the mortgage bankers say that 95% of active mortgages are being paid up to date.  Only 5% are late and half of those are not close to being marked for foreclosure.

This sad chapter may soon be concluded.  Then the media will be able to announce that a new burst of confidence has so energized the economy that housing seems to be ready for a major comeback.