American home buyers and owners aren't the only ones who are worried about a possible housing price bubble. So are foreigners who invest in securities backed by U.S. mortgages.

They are not so concerned that they're ready to pull out of the market, at least not yet. But they are beginning to ask questions.

"They read our press reports and are asking if it's true," said Leland Brendsel, chairman of Freddie Mac. The company, a major supplier of funds for U.S. mortgages, obtains about 30 percent of its money from foreigners who, at least until now, have viewed the Freddie Mac's securities as one of the best investments they can make.

Brendsel, who just returned from visiting customers in Australia, New Zealand, Singapore and Malaysia, where he was trying to broaden the global investment in America's housing market, tells those who ask whether prices here are too high relative to what would-be home owners can pay "depends on who you are and where you live."

"While there are a few metropolitan areas showing some weaknesses," he says he responds, "for the most part, there is no risk of price declines."

Whether that will be enough to satisfy their concerns has yet to be seen. But if foreigners should decide to put their Yen, Pesos and Euros elsewhere, it could drive mortgage rates higher and make funding difficult, if not impossible, to find.

Freddie Mac estimates that for the remainder of the decade, American families are going to need $6 trillion in additional mortgage money. And the company's ability to raise capital from investors across the world is "vital" to the ability of local lenders to meet that demand, Brendsel said at the Mortgage Bankers Association's annual convention in Chicago last month.

Fannie Mae, Freddie Mac's larger rival, also depends on foreign investors to supply a big portion of the money it funnels through lenders to domestic borrowers. Since 1998, a third of its benchmark securities and bonds have been purchased by central banks and individuals from other countries.

Indeed, as Brendsel was addressing the MBA, his counterpart at Fannie Mae, Franklin Raines, was leaving on a trip to visit investors in Hong Kong, China, Singapore and Japan, where he plans to announce next year's calender for benchmark notes. Asians purchase about 14 percent of Fannie Mae's securities.

Demand for houses in the United States over the rest of the decade is expected to put unprecedented pressure on the two secondary mortgage market institutions to raise cash from all over the world. Ironically, immigrants from other countries are expected to be a major source of demand for mortgages in the coming years. The majority of the 5 million Hispanics who buy a house in this decade will be newcomers to the United States, Brendsel said.

Published: November 13, 2002

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