Federal Reserve Buys More Than 100% of Mortgages Issued in 2009

[notesdev]

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:

...


numbers and charts at link:

http://www.chrismartenson.com/blog/federal-reserve-buys-more-100-mortgages-issued-2009/28343

Bottom line: the monomaniacal focus on supporting unsupportable housing prices has led to NO ONE being willing to buy U.S. mortgage debt. The only way they can keep up the pretense even for a short while is for the Fed to print money to "buy" them, which of course is not actually buying them but stealing from all other holders of US dollars to acquire them.

[MannyGoldstein]

1. Wow - That Says A Lot - No Confidence in Mortgages

It must be traumatic news to the bankers to realize that the economy is screwed up this bad. To pull themselves together they'll be needing bonuses, vacations, and another invite to lunch at the White House.

[Po_d Mainiac]

2. Denninger has some new numbers (link below)

http://market-ticker.org/authors/2-Karl-Denninger

Cure rates for these distressed loans remain low. Amherst noted a near 0% cure rate of all loans in foreclosure, 0.8% for 90 plus days delinquent, 4.4% for 60 days delinquent and 26.5% for 30-day delinquencies. All told, Amherst expects 12.42% of units (from the 13.54% of properties delinquent and in foreclosure) to eventually liquidate.

[unblock]

3. it's more like 90%, and it's not much different than it's been for a long time.

the math at the link is dubious, it's based on some assumptions although it does make clear that they're talking about getting to more than 100% by including old mortgages in fed purchases but not including them in new issuance, so of course it's not surprising that you would get a number over 100%.

for a long time fnma/fhlmc/gnma bought 90+% of the market and sold pools of mortgages to wall street, who turned them into all those fancy complex securities we all know and love. what's changed is that the wall street securitization market is dead and the purchasing is being done by the fed rather than the government-sponsored entities.

it's really the shadow banking system that's sitting it out that's changed things. i don't know how that makes what the government is now doing "stealing", unless you're using that perjoratively the same way some people complain about welfare as "stealing" from the rest of us.

[IrateCitizen]

5. You seem to be missing the point of the article.

Previously, the end-holder of issued mortgages was in the private sector. Now, the end-holder is the Federal Reserve, which in essence means that it is the federal government.

Previously, when loans defaulted, it was the private banking industry -- earlier commercial, then shadow -- that took the hit. The game changer seems to be from the bailout and this new development that the federal government is going to take the hit if/when the loans default.

This also dovetails with the decisions at Treasury to guarantee the debt of Fannie Mae and Freddie Mac to the tune of trillions of dollars. In all of these instances, it is the PUBLIC sector, not the PRIVATE sector, that is on the hook for defaulting loans.

[abelenkpe2]

8. I thought the FED

was a private bank??

[IrateCitizen]

9. It's a banking cartel that controls the US money supply and monetary policy

Any initiatives that the FED undertakes, therefore, have a direct connection with the US Treasury. If our money supply is expanded through the FED issuing debt, eventually those debts have to be repaid -- and that repayment falls to the Treasury, ultimately.

The Federal Reserve Act of 1913 and subsequent amendments to that act effectively made the FED an unelected, seemingly unaccountable additional branch of the U.S. Federal Government.

[DireStrike]

4. What if they had subsidized the mortgages for the mortgage holders instead

That would also inflate prices, but do you think it would be more or less than the current situation?

The only other difference is that the money would go to regular americans instead of the major holders of capital. None of the elite want that, and the retards across the aisle would rather see the corporate deathgrip on the nation consolidated than dare help out their countrymen, their REAL peers.

[upi402]

6. So, is Obama hiding the M3 in the Bush tradition?

Or is he going to tell the world that the USD is crap?

[Dirk_H]

7. USA on the brink of disaster

Until recently the "terminal buyer" of american mortgage dept likely was an asian or european saver, buying a mortgage backed financial product via his local bank, that assured him that this was 100% safe, because of its AAA-Rating (given by an american rating agency). Recently a lot of this "terminal buyers" all over the world lost much of their old-age provisions. Do you wonder that they are no longer willing to lend their savings to american consumers?
If the FED continues printing dollars in this maniac style, soon Americas foreign financiers will also refuse to buy federal dept, which would bring the USA on the brink of disaster.

[IrateCitizen]

10. I think your post header stated it more succinctly than the post itself.

The US is not being "brought" to the brink of disaster. It is currently at the brink of disaster.