No. of Recommendations: 2
My opinion differs from Wendy's a bit...

==================
About half the mortgages in the U.S. are bought by the GSEs. If they stopped buying mortgages, banks wouldn't be able to keep lending. There just isn't a marketplace for investors to buy the many, many bank mortgage loans. (That's why the GSEs were set up, in the first place. Denmark has a way to sell the bank loans, but the U.S. doesn't.)
==================

50% has been the historical pattern but over the last 18-24 months, Freddie and Fannie have absorbed about 70% of mortgages floated by primary lenders.

==================
With fewer mortgage loans available, the housing market would slow down. The value of homes would drop even more, and every sector that services home building would drop more. If your family is employed in that sector, there might be a problem. Otherwise, I don't think there will be an impact.

This wouldn't affect a settled family directly. It would make it harder to sell a house, if you needed to move. But price levels of household necessities are set by the market, and I don't think they will change.

It's really a macro issue, not a household issue.

==================

True but the dynamics of the current market for these securities and the lack of any "safety cusion" in the balance sheet of any of the banks, investors or individuals involved will pass this shock IMMEDIATELY to the bottom line of most families.

1) further contractions in mortgage market liquidity will immediately freeze new/used home sales, immediately affecting durable goods sales and related manufacturing which account for about 8.2 percent of the economy

2) any "nationalization" of Fannie / Freddie debt obligations by a Treasury bailout will likely trigger concern / panic among foreign investors holding Treasuries, spiking interest rates and a weaker dollar which will spike energy prices and further stress the economy

The combination of further reductions in home equity, higher interest rates and higher energy prices will topple many more families into bankruptcy, even if they can keep their existing job and don't need to immediately sell their home.


WTH
Print the post  

Announcements

Live Video Event Monday!
The GP team is hosting a live video event on Monday at 4 p.m. ET. Don't worry if you can't make it — we'll have a replay and a transcript. Click for more!
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.