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Injin

Federal Reserve Buys More Than 100% Of Mortgages Issued In 2009

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http://www.chrismartenson.com/blog/federal...sued-2009/28343

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.

Taken together, and assuming that we live in a world where 10% is the average down payment, we get this table:

Total_value_of_existing_mortgages.jpg

That is, a total of ~$686 billion in new mortgages were issued in 2009 (through August).

Now let's look at how many Mortgage Backed Securities (MBS) and agency debt obligations were accumulated by the Federal Reserve on its balance sheet over the same period of 2009:

MBS_Purchases_by_the_Fed.jpg

It turns out that in 2009 (again, through August), the Federal Reserve has bought $624 billion of MBS and a further $98 billion of Agency debt, for a total of $722 billion in money injection into the housing market through Fannie Mae, Freddie Mac, and the FHLB.

more at the link.....

Printy printy.

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In the UK, are we now expecting QE to be used to back all new UK mortgages?

VMR.

And some of the old ones, yep.

Fixed market - they are trying to keep prices high by dicking around with the margins. low volume, high price and hope that theres no shortage of suckers or infation becomes a problem.

More can kicking behaviour from the "tomorrow never dies" crew.

Edit - It's the DeBeers model of profit/price retention.

Edited by Injin

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One guaranteed way of making sure the secondary market doesn't come back is by frigging the whole market so that pricing bears no reflection to risk.

Mervyn Knut is doing the same with Gilts - there is no Gilt market. What happens when banks get charged to park their money with the BOE? Are the BOE expecting the banks to buy up Gilts (to get them off their books) or buy up even more absurdly overpriced housing debt instruments, or lend this money directly and put the risk on their books - if anything (considering the economic background) the risk of doing so at current pricing is greater than when before this whole market first blew up.

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Holy moly, Injin! Can you imagine what is going to happen when they stop printing money? I can.

Can you enlighten the rest of us ? We're on a forum, y'know. Kinda nice to share these things....... :D

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I suppose it is interesting to consider that the Fed now controls the future prospects of the private banks. Should it be audited and in some way wound up, the banks would be powerless - are they merely pawns in the game of chess being played by the government and the Fed now?

We live in an increasingly strange world these days. I wonder when the next shoe will fall...

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They aren't.

I agree, the new paradigm will be QE money for ever more. QE money will buy MBS in the UK. Guaranteed. It's the perfect solution in the UK. The UK thickies still want expensive houses. At least the Yank public have deserted the housing market, they've got more sense. Although they're probably just looking for a new bubble.

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I agree, the new paradigm will be QE money for ever more. QE money will buy MBS in the UK. Guaranteed. It's the perfect solution in the UK. The UK thickies still want expensive houses. At least the Yank public have deserted the housing market, they've got more sense. Although they're probably just looking for a new bubble.

Although QE didn't sustain Japanese property prices.

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The Chinese must be so glad that by buying American sovereign debt, they are essentially buying mortgage-backed securities with very low yields.

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One guaranteed way of making sure the secondary market doesn't come back is by frigging the whole market so that pricing bears no reflection to risk.

Mervyn Knut is doing the same with Gilts - there is no Gilt market. What happens when banks get charged to park their money with the BOE? Are the BOE expecting the banks to buy up Gilts (to get them off their books) or buy up even more absurdly overpriced housing debt instruments, or lend this money directly and put the risk on their books - if anything (considering the economic background) the risk of doing so at current pricing is greater than when before this whole market first blew up.

agreed, stage 2 about to unfold shortly.... :ph34r:

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Guys can I just check my understanding on this one....the article in the original post alleges that the Fed are basically the ultimate owner of ALL mortgages in 2009. The working assumption on the thread now seems to be that the Fed are underpinning the entire market. I can't quite get to that position from the article Injin posted and asked earlier:

- Would an MBS (whenever it was originated) taken as collateral by the Fed be counted on its balance sheet?

- If so (or if the Fed are outright buying older MBS), then this this data doesn't necessarily say that the Fed has basically underwritten every new mortgage in 2009 does it? (I thought there hadn't even been any MBS created this year....)

It would be a huge and very scary thing if the Fed have really been the buyer of every US mortgage this year. I have my doubts whether it's actually the case but there are many on here who have better understanding than me of how all this works.

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surely these fed figures just reflect the bail outs to fannie and freddie...they undertook to buy up bonds issued by these companies...tickerforum beleive they had no legal right to do so and is blowing his top.

http://market-ticker.denninger.net/archive...e-Fed!.html

even has a view showing that the goverment is NOT guaranteeing the bonds... but the fed buying them appears to do just that.

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I agree, the new paradigm will be QE money for ever more. QE money will buy MBS in the UK. Guaranteed. It's the perfect solution in the UK. The UK thickies still want expensive houses. At least the Yank public have deserted the housing market, they've got more sense. Although they're probably just looking for a new bubble.

As everyone appears equally screwed we do appear to be entering a new economic paradigm for a time. Although this isn't going to paper over the cracks of collapsing tax receipts.

The Americans have deserted the housing market because enough of them can walk from the debt, here in the UK that's not so easy.

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They'll call an election?

That will be the clincher, I've thought, since 2007 - at least.

I think it is interesting that Darling is talking about passing binding legislation to reduce the national debt. Speaks volumes to me.

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That will be the clincher, I've thought, since 2007 - at least.

I think it is interesting that Darling is talking about passing binding legislation to reduce the national debt. Speaks volumes to me.

Interesting because it will cripple the next administration.

Brown is going to leave a turd nearly as big as himself in No 10.

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Interesting because it will cripple the next administration.

Brown is going to leave a turd nearly as big as himself in No 10.

Perhaps. One idea I've been wondering about is this... I wonder if MPs in general are collaborating rather than competing in private? If you'll allow me a wandering-thoughts indulgence, I see two medium-term outcomes for our current predicament:

1. Significant deflation in asset prices - possibly coupled with wage deflation... 'essentials' such as food (maybe rent, too) being largely unaffected. A period of austerity and suppressed business activity.

2. A return to rapid inflation in asset prices - little wage inflation... a decoupling from capital wealth from cash-flow money... essentially precluding transfer of debt-free ownership of any asset.

In some sense, both of these are plausible futures, but I think most thinking individuals will find #2 less acceptable than #1 - though I've absolutely no confidence that the general public, with their apathy towards politics and aversion to cerebral exercise, would vote that way... or that this stark choice would be reflected in a way that most would find comprehensible in the media. I'm wondering if what's happening here is exploitation of bipartisan politics? If Labour know that it is inevitable that the Conservatives will be in government - and faced with some very, very hard problems... might labour be collaborating with the conservatives to set up an irrelevant dispute to distract the public? Traditional conservatives can point at reckless waste by the reckless socialist spending by Brown, and blame the past government for the ills of its day - while traditional Labour supporters can lament that the Conservatives are not concerned with the plight of ordinary people. Both parties benefit with a strengthening of support of those who have adopted their traditional core principles... and, at this juncture, the conservatives need Labour to commit to the conservatives plans in order to avoid descent when the reality of the situation is felt in a year or two's time.

Edited by A.steve

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Perhaps. One idea I've been wondering about is this... I wonder if MPs in general are collaborating rather than competing in private? If you'll allow me a wandering-thoughts indulgence, I see two medium-term outcomes for our current predicament:

1. Significant deflation in asset prices - possibly coupled with wage deflation... 'essentials' such as food (maybe rent, too) being largely unaffected. A period of austerity and suppressed business activity.

2. A return to rapid inflation in asset prices - little wage inflation... a decoupling from capital wealth from cash-flow money... essentially precluding transfer of debt-free ownership of any asset.

In some sense, both of these are plausible futures, but I think most thinking individuals will find #2 less acceptable than #1 - though I've absolutely no confidence that the general public, with their apathy towards politics and aversion to cerebral exercise, would vote that way... or that this stark choice would be reflected in a way that most would find comprehensible in the media. I'm wondering if what's happening here is exploitation of bipartisan politics? If Labour know that it is inevitable that the Conservatives will be in government - and faced with some very, very hard problems... might labour be collaborating with the conservatives to set up an irrelevant dispute to distract the public? Traditional conservatives can point at reckless waste by the reckless socialist spending by Brown, and blame the past government for the ills of its day - while traditional Labour supporters can lament that the Conservatives are not concerned with the plight of ordinary people. Both parties benefit with a strengthening of support of those who have adopted their traditional core principles... and, at this juncture, the conservatives need Labour to commit to the conservatives plans in order to avoid descent when the reality of the situation is felt in a year or two's time.

Yes they are.

All three main parties share certain core assumptions - they have to or they wouldn't be in political parties or westminster in the first place.

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