Gross warns mortgage privatisation could 'cripple' US recovery

Pimco’s Bill Gross says there will be no housing-led recovery in the US without Government support.

The veteran bond investor says mortgage yields could rise as much as 4% if housing agencies such as Freddie Mac and Fannie Mae are put into private hands, stalling the recovery.

"Ninety-five percent of existing mortgage creation over the past 12 months were government-guaranteed. The private market was nowhere to be found because they charged too much," he says.

"Having grown accustomed to a housing market aided and abetted by Uncle Sam, the habit cannot be broken by going cold turkey into the camp of private lending.

"The cost would be enormous in terms of yields - 300-400bp higher than currently offered, crippling any hopes of a housing-led revival to the economy."

Instead, Gross proposes the Government remains involved in mortgage provisions, by combing all housing agencies into one body.

"Taxpayers would be protected through tight regulation, adequate down payments, and an insurance fund bolstered by a 50-75bp fee attached to each and every mortgage," he says.

"The private market, to my mind, had really lost its claim as the most efficient and judicious arbiter in this particular case."