Government-sponsored enterprises Fannie Mae and Freddie Mac need to ease the requirements for down payments so debt-stressed consumers can afford to buy houses again, Pimco's Bill Gross told CNBC.
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The easing of up-front cash requirements is paramount so housing can play a leading role in the economic recovery, said Gross, co-CEO of Pacific Investment Management Co. (Pimco) and head of the world's largest bond fund.
Record-low mortgage rateswon't help housing as long as consumers who are trying to reduce debt, don't have the cash to take advantage of 4 percent interest rates. Housing starts and purchases for July hit multi-year and in some cases historic lows as federal tax credits expired and unemployment remained stubbornly high.
"To the extent that you can finance a 3.5 to 4 percent (mortgage) with a 20- or 25-percent down payment, most...households can't come up with the money," Gross said. "So there needs to be some type of cautionary reduction in terms of down payments."
The government can influence down payment regulations through the control it exerts over GSEs Fannie Mae and Freddie Mac , which control about 90 percent of the secondary mortgage market.
On a recent trip to Washington, Gross made his recommendations known to Treasury Secretary Timothy Geithner.
In addition to his housing recommendations, he also voiced his opinions over what other actions the government should take in order to boost the economy, which remains mired in a slow-growth slumpdespite more than $800 billion of government stimulus.
"I would like, and Pimco would like, for the administration to move in a slightly different direction in terms of stimulus," Gross said. "Stimulus policy should be more directed toward infrastructure and, yes, green energy as opposed to consumption, which the prior programs have been."
As for investment, Gross said he is currently interested in Treasury Inflation Protected Securities and both government- and nongovernment-backed mortgages.
Though Pimco this year started its first equity fund, he said he understands why investors continue to flock to bonds.
"That's only a natural reaction to what's happened over the past five years in terms of volatility of equity prices, the dot-com situation, and then, of course, the housing bubble that burst," he said. "Investors are beginning to seek a safer haven."
