The Fed now owns nearly 1/3 of all U.S. mortgages(thestreet.com)
thestreet.com
The Fed now owns nearly 1/3 of all U.S. mortgages
https://www.thestreet.com/mishtalk/economics/the-fed-now-owns-nearly-one-third-of-all-us-mortgages
331 comments
Does the fed get the interest income from those mortgages? Because if it’s not getting 100% of that interest it’s simply bailing out speculative loans by banks.
What are the rules for the fed taking on mortgages etc? I would want a max price of 80% of the value of the mortgage alongside the all proceeds portion so that banks can’t just make bad loans and then onsell them to tax payers
What are the rules for the fed taking on mortgages etc? I would want a max price of 80% of the value of the mortgage alongside the all proceeds portion so that banks can’t just make bad loans and then onsell them to tax payers
That is interesting, but can someone explain why this is a bad thing?
I just refinanced my 30-year fixed mortgage for 2.5%. The rate is utterly ridiculous now. If we get even a modicum of inflation over the next few years, I will be paying negative real interest rates.
I keep thinking of all the huge amount of asset purchases by the Fed, especially legally dubious purchases like corporate bonds, that "this won't end well".
That said, I don't really know what "not ending well" would look like. Would it just be total runaway inflation? Can anyone more knowledgeable comment on what possible endgames are for these asset purchases?
That said, I don't really know what "not ending well" would look like. Would it just be total runaway inflation? Can anyone more knowledgeable comment on what possible endgames are for these asset purchases?
There would be no inherent problem with having the Fed hold this much debt, if the tax system then soaked up distortions in how the resulting stimulus was distributed into the economy. That is, if the tax system is structured to pull back currency from unproductive sinks before it yields inflation, then there's no problem with the Fed holding that debt.
A better structure, as others have pointed out, would be to have the Fed just hold the government's debt, so that allocation and taxation can both be managed by the government. At the moment, the Fed and Treasury (via Congress) are both competing to play an allocating role in the economy at the same time, with no real coordination or plan.
A better structure, as others have pointed out, would be to have the Fed just hold the government's debt, so that allocation and taxation can both be managed by the government. At the moment, the Fed and Treasury (via Congress) are both competing to play an allocating role in the economy at the same time, with no real coordination or plan.
I would be curious to see analysis for what home prices would be with 0 Fed intervention. Also, I don't understand how millennials aren't supposed to see this figure and immediately feel a sense of rejection, that the housing market is some form of a pyramid scheme, where you had to get in early to have a chance.
More interesting than they owning 1/3 of the mortgages is what quality is the mortgages they own. Are they all sub prime quality? If they are is this a strategy to save banks from a default crisis in the near future without taking the systemic hit like 2007.
Can the Fed actually make money on all those mortgages?
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On a similar note, the developments on commercial real estate loans are worrying (this has been brought up by discussions of commercial rents with unrealistic prices)
https://www.reddit.com/r/nyc/comments/innhah/nearly_twothird...
The headline isn’t correct.
There is $17T in US mortgage debt. The Fed has backed $2T of that via mortgage backed securities, up from $1T pre-Covid-19.
That’s ~11% not 1/3.
The article itself mentions this, but decided to use a misleading headline instead.
There is $17T in US mortgage debt. The Fed has backed $2T of that via mortgage backed securities, up from $1T pre-Covid-19.
That’s ~11% not 1/3.
The article itself mentions this, but decided to use a misleading headline instead.
By protecting the price of real estate through mortgage purchases, the Fed is undermining the legitimacy of private property and the concept of private ownership. This is not going to end well.
>> Morgan Stanley analysts pointed out in late March that the buying was running at eight times the pace seen in prior episodes of Fed purchasing under programs known as quantitative easing.
8x increase over QE is crazy. Is that 8x mortgage bonds or 8x bonds in general?
8x increase over QE is crazy. Is that 8x mortgage bonds or 8x bonds in general?
Out of curiosity, why wouldn’t we want the government managing mortgages for the whole country? (Assuming the acquisition process isn’t slow AF because government.)
Real estate seems like a pretty important part of the economy and, more importantly, the government artificially making housing more accessible for potential first time buyers creates a virtuous cycle where people can finally save money and the eventually spend that money to stimulate their micro economies.
Real estate seems like a pretty important part of the economy and, more importantly, the government artificially making housing more accessible for potential first time buyers creates a virtuous cycle where people can finally save money and the eventually spend that money to stimulate their micro economies.
This is actually a good trend. Just compare this to the alternative. San Francisco and Seattle, where the tech elite overprice the non-tech population, decimating local communities and worsening the homeless problem. Vancouver and Irvine, where Chinese elite launder money to buy real state as investments (and leave them empty) rather than living spaces, resulting in the same problem.
This all might be a silver lining of the pandemic: combined with remote work, people are no longer confined to one place - avoiding discrimination of all sorts (from real state to immigration). The truth is that if the rich are left unchecked, greed can run rampant and create more harm than good- ex: healthcare, stock bubbles.
This all might be a silver lining of the pandemic: combined with remote work, people are no longer confined to one place - avoiding discrimination of all sorts (from real state to immigration). The truth is that if the rich are left unchecked, greed can run rampant and create more harm than good- ex: healthcare, stock bubbles.
The way crony capitalism theft works is to look for a way to steal. The way to steal is now clear. Manufacture blow-up mortgages and they blow up on the mortgage buyers (Fed).
S&L 1980s bailouts were an exact copy of 2008 Mortgage bailouts. Theft in creating mass blow-up real estate loans. This is a proven crony capitalism way to steal.
When the Fed has to politically buy them, then crony capitalists will find a way to get them buying blow-up mortgages in 5 or 10 years.
S&L 1980s bailouts were an exact copy of 2008 Mortgage bailouts. Theft in creating mass blow-up real estate loans. This is a proven crony capitalism way to steal.
When the Fed has to politically buy them, then crony capitalists will find a way to get them buying blow-up mortgages in 5 or 10 years.
When I was a boy my elders told me that we had to win the Cold War or we would end up with the government owning everything.
The homes around here (suburb) fly off the shelves even if prices are higher then the last bubble (~2007)... not sure what is going on. Could people be moving away from large cities because of covid-19 and remote work opportunities?
@dang should probably link to the main Bloomberg story rather than a shorter, opinionated site/blog:
https://www.bloomberg.com/news/articles/2020-09-01/fed-s-mor...
https://www.bloomberg.com/news/articles/2020-09-01/fed-s-mor...
I don't understand what is being used as the denominator to generate this 1/3 number in the headline. A quick search shows that the US MBS market is about $10.3 trillion in size [1] - the actual mortgage market is larger (what nostromo mentioned earlier). Putting some recent numbers [2] over the size of the MBS market would show that the Fed owns a little less than a 1/5 of all US MBS.
Also, he mentions that the Fed has been purchasing roughly $100 billion per month in MBS securities since April, but this leaves out the fact that a non-insignificant number of MBS in their holdings are either i) reaching maturity, or ii) being prepaid. The second issue is more prevalent now - with the low-rate environment that exists in the US many people are refinancing their mortgages to take advantage of lower rates, but in any case it isn't uncommon for mortgages to be paid off before their maturity date. I don't know what the net figures are, but what I'm trying to say is that purchases of MBS != growth of MBS holdings.
I seriously think this author has somehow conflated the size of the SOMA assets with the size of the MBS market - continuing growth of MBS at $100 billion for the rest of the year, leaving all else equal, will give us about $2.4 trillion of MBS over a denominator of $7.4 trillion - which would give us about 1/3.
[1]: https://www.sifma.org/resources/research/fixed-income-chart/ [2]: https://www.federalreserve.gov/releases/h41/current/
Also, he mentions that the Fed has been purchasing roughly $100 billion per month in MBS securities since April, but this leaves out the fact that a non-insignificant number of MBS in their holdings are either i) reaching maturity, or ii) being prepaid. The second issue is more prevalent now - with the low-rate environment that exists in the US many people are refinancing their mortgages to take advantage of lower rates, but in any case it isn't uncommon for mortgages to be paid off before their maturity date. I don't know what the net figures are, but what I'm trying to say is that purchases of MBS != growth of MBS holdings.
I seriously think this author has somehow conflated the size of the SOMA assets with the size of the MBS market - continuing growth of MBS at $100 billion for the rest of the year, leaving all else equal, will give us about $2.4 trillion of MBS over a denominator of $7.4 trillion - which would give us about 1/3.
[1]: https://www.sifma.org/resources/research/fixed-income-chart/ [2]: https://www.federalreserve.gov/releases/h41/current/
Maybe some people have discovered a money perpetuum mobile: A bank creates mortgages inflating the collateral then sells them to the Fed. The bank walks away with a surplus and the Fed explains that they are saving the economy by bailing out the bank.
We need massive govt. investment in modular housing manufacturing research with a standards consortium so that homes can click together with utilities :)
>Morgan Stanley analysts pointed out in late March that the buying was running at eight times the pace seen in prior episodes of Fed purchasing under programs known as quantitative easing.
>Just before this latest round, principal payments from its mortgage bond holdings had whittled that down to 21%, but it has now increased back to 30%.