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Federal Reserve Buys More Than 100% of Mortgages Issued in 2009
Monday, September 28, 2009, 10:13 am, by cmartenson
What follows is a snippet from the most recent Martenson Report (Housing and Wealth: Part II).
This is important information. What I've found and present below is that the Federal Reserve is not just supporting the housing market, it is the housing market.
Just as important as a person's desire to buy a home is their ability to gain access to mortgage funding.
The mortgage market is a gigantic beast with many moving parts, but it is pretty easy to understand from a high level.
The process works like this: A homeowner secures a mortgage from a bank or mortgage company. Then the mortgage is sold off to another company, with the cash generated by that sale now available to lend to other potential homeowners. Ultimately the mortgage may pass through several sets of hands but ultimately it lands with a terminal holder.
In that chain, the mortgage might get sold off several times, or perhaps sliced and diced by Wall Street wizards, but all that matters is that some company (with cash) is there at the end to buy the mortgage to keep the whole chain moving along.
Lately, the "terminal buyers" in that chain have increasingly ended up being the federal government (through the GSEs) and the Federal Reserve.
And not just by a little bit, but by a lot.
Here are the numbers:
So far in 2009 (through August), a total of 3.2 million existing homes were sold for an average price of $217,000, while 263,000 new homes were sold for an average price of $264,000.
But that is not waht we actually see withy the bundle of mortages.Many are held by teh large financial institions and Fanie. Amoung thwese are both good loans and what is called taoxic assets. Ther TARP mopney was sold to congresss by the fact that a portion of it would go to combine with fianncail institution and investment groups to buy these assets that the privte firsm would unbundle ;so the exact numbers could be seen. Geithner never did this and it lok slike aftre the bankruspies that they are reluctent to get involved with the governamnt again.Without them the governamnt does not have the assets or the expertise to value them.Its true that the lenders sold the loans in bundles which has been doen for a long time. Its that the bundles contain basically bad loans that wre not documented and others that have gotten behind now.there are still many of the asswets to actually pice in those institutions assets that still are not valued correctly.In the 80's savings and loan collapse banks foreclosed on many builders then the bank went under and the feds actaully auctioned off those homes they took over. Thios is quite different in that the assets values are not know and they have to be debundle because mnay are good loans in with those bad loans.Faniiue was a total disaster with the congress refusing to actually audit it when it wqas brought up and then took ovfer;as franks said we can always bail them out which is what has happened.
How exactly do they buy more than 100% of the mortgages?
Simple.
If (as an example) 1,000 mortgage loans were written in the last year, and the Fed Reserve bought 1,001 mortgage loans, they bought more than 100% of the mortgages.
The title of the thread is typical of people who skew numbers for the sake of being an alarmist.
a) VERY stupid for attempting to equate the value of housing transactions with the size of the Mortgage Backed Securities market, the trade of one is still largely a wasteland after the implosion of many of the players while the other is complex market driven by normal people with normal fears as well as the ups & downs of life / careers.
b) very naive in his misunderstanding of how / why the Federal Reserve decided to intervene in the MBS and clueless as to what specific results will be seen as that intervention is withdrawn. Frankly the Chairman of the FRB and the rest of the Board of Governors have NO roadmap for what will happen, but they are at least wise enough to use their considerable academic background, deep connections to the banks / financial institutions, and enormous pool of data to guide them away from any obvious shipwrecks...
c) completely alarmist / bordering on delusion for suggesting that the Fed is "the housing market" -- the Federal Reserve neither owns, buys, nor sells ANYTHING that could even remotely be called "real estate" let alone "housing". The participation of the Federal Reserve in purchasing MBS is certainly an unusual occurrence, but so too was the rapid rise in the monetization of mortgages. The lack of regulatory oversight should provide PhD candidates with decades of work on thesis about that as well as the false sense of stability that the participation of the GSE lent to the party. The party ended. The Federal Reserve is cleaning up the mess, while trying to engage in its MISSION to "“to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.” It would be ridiculous to ignore what is /was the MOST glaring obstacle to these ends...
The Fed is frantically trying everything they can to keep home prices proped up. Not that I blame them per se, but in the end it will more than likely turn out to be a lost cause all they will have done is keep the mortgage market afloat as home prices drift lower over the coming years and in doing so they will take on more risk than a sound financial system should. Afterall, we know what the outcome is when your business model is to make mortgages with 3% down and crappy credit, don't we? And yes, a 620 FICO is crappy credit.
If we would only just allow home prices to fall to reasonable levels the market would sort things out a lot faster. But, that wouldn't go over well with the voting population.
The Fed is frantically trying everything they can to keep home prices proped up. Not that I blame them per se, but in the end it will more than likely turn out to be a lost cause all they will have done is keep the mortgage market afloat as home prices drift lower over the coming years and in doing so they will take on more risk than a sound financial system should. Afterall, we know what the outcome is when your business model is to make mortgages with 3% down and crappy credit, don't we? And yes, a 620 FICO is crappy credit.
If we would only just allow home prices to fall to reasonable levels the market would sort things out a lot faster. But, that wouldn't go over well with the voting population.
This is precisely what happened with the farm economy in the early-mid 1980s. It "corrected itself" after a decade of extreme inflation and double-digit interest rates.
Oddly enough, there are still millions of people who blame that Farm Crunch on Reagan.
Go figure...
Any market that has been on an inflation rampage HAS to correct itself. The skyrocketing prices of housing in the later 90s to early 2000s HAD to correct itself. Now it has.
b) very naive in his misunderstanding of how / why the Federal Reserve decided to intervene in the MBS and clueless as to what specific results will be seen as that intervention is withdrawn. Frankly the Chairman of the FRB and the rest of the Board of Governors have NO roadmap for what will happen, but they are at least wise enough to use their considerable academic background, deep connections to the banks / financial institutions, and enormous pool of data to guide them away from any obvious shipwrecks.......
Exactly which FRB chairman and board of governors has lost their job for running the economy directly into the obvious shipwreck that has required their institutions to receive an unprecidented amount of social welfare from the Federal Government just to say in business? They should have never let the MBS debacle happen in the first place.
They are certainly wise enough to cover their own asses but from what I can see, little else. Even a econ 101 student can see they should have raised interest rates years ago as you don't fix a developing bubble by blowing more air into it. If they had done this, there would have been little incentive for these things.
The "wise men" of the Fed were handed the total monopoly in the USA to set and control the nation's monetary policy and because of that they had a fiduciary duty to watch over what was going on with the risky banking and put a halt to it. If everyone else lost their minds with debt they are supposed to be the final gate to stop it even if congress gets involved. They have completely failed at this duty.
c) completely alarmist / bordering on delusion for suggesting that the Fed is "the housing market" -- the Federal Reserve neither owns, buys, nor sells ANYTHING that could even remotely be called "real estate" let alone "housing".
In what sense is owning a mortgage not "remotely" owning real estate? The FED has created a massive subsidy to the mortgage market by reducing mortgage rates by ~75bp. But a number of other organizations are also probing up the market. In the aggregate the support is massive...of course that does not stop Californians from thinking the market is going to "rebound".
The Fed is frantically trying everything they can to keep home prices proped up. Not that I blame them per se, but in the end it will more than likely turn out to be a lost cause all they will have done is keep the mortgage market afloat as home prices drift lower over the coming years and in doing so they will take on more risk than a sound financial system should. Afterall, we know what the outcome is when your business model is to make mortgages with 3% down and crappy credit, don't we? And yes, a 620 FICO is crappy credit.
If we would only just allow home prices to fall to reasonable levels the market would sort things out a lot faster. But, that wouldn't go over well with the voting population.
i actually agree with you, except for the part about the voting public. i think the voting public would like to see houses fall to reasonable prices, making housing affordable again with less risk of defaulting, and also limiting the damage that the next bubble will do.
i agree 100% that the fed is trying frantically to keep housing prices propped up.
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