Showing posts with label Freddy Mac. Show all posts
Showing posts with label Freddy Mac. Show all posts

Monday, February 29, 2016

Uncle wants to revive Mortgage Backed Securities.

Mortgage backed securities used to be a $ trillion dollar a year market, up until 2007 that is.  Since 2007 nobody will touch them.  The Journal shows a bar graph of sales over the years and zero sales in any year after 2007. 
   Many people think that mortgage backed securities caused Great Depression 2.0  In the go-go real estate bubble back in the aughts, banks and mortgage lenders needed more money to do mortgages with.  Someone had the bright idea of creating a security, essentially a company IOU, which was "backed" by mortgages held by the bank. These IOU's were sold to gullible investors, by promises of high yield,  and the proceeds used to write more mortgages.  Trouble was, the "backing" didn't mean anything, the IOU holders did not get the right to repossess the properties when the borrowers stopped paying.  And when the borrowers stopped paying, the investors stopped getting paid too.  Investors wised up in 2007 and no more mortgage backed securities have been sold. 
   So banks can do mortgages using their own money, of which they never have enough, or by getting FHA or Fanny Mae or Freddy Mac or VA to put up the money.  But, these government agencies, still suffering huge losses from 2007, all have pretty stiff rules about what kind of mortgage they will accept.  Unless the borrower has a real clean credit record, no deal, no mortgage.
  Now we have Monique Rollins,  deputy assistant secretary in Obama's Treasury Dept saying "We do believe that a reformed asset class could responsibly broaden access for qualified buyers who are not being served today."   Translation: Let's do mortgage backed securities to give the banks money to do any kind of mortgage they like."   Which is what caused Great Depression 2.0.  Not good.  But the Obama administration is in favor.
  Of course, Monique has not explained what she would do to get investors to touch the new model mortgage backed securities.  
  I wonder what a Trump administration would do?