Federal Reserve has bought 100%+ of 2009 mortgage market

Chris Martenson – Federal Reserve Buys More Than 100% of Mortgages Issued in 2009:

In other words, the Federal Reserve alone bought $722 billion of mortgages and agency debt when only $686 billion in new mortgages were issued. So, through August, the Fed bought more than 100% of the entire supply of mortgages in 2009.

That’s not a free housing market; that’s a market bought, owned, and sustained by the Federal Reserve’s willingness to print up three quarters of a trillion dollars out of thin air.

While the individual mortgages issued in 2009 may or may not be the exact same ones purchased by the Federal Reserve, that’s immaterial. All the mortgage issuers care about is that when they issue a mortgage, a purchaser with money exists somewhere down the line. The chain needs a terminal buyer, and that buyer has become the Federal Reserve.

The impact of these purchases by the Federal Reserve is to both provide liquidity and to drive down the rate of interest for new mortgages. By lowering both the long end of the Treasury curve (which the Fed does by actively buying Treasuries) and providing more than sufficient demand for MBS and agency paper, long-term interest rates come down.

Without the Fed’s activities, it is a rock-solid certainty that mortgage interest rates would be higher than they are, and possibly a LOT higher.

What happens if the Fed can no longer finance the mortgage market? Or America’s government, for that matter, which it is effectively financing by purchasing Treasuries. This is another of the risk factors for a sudden stop, in which the debt-addicted economy or debt-addicted government come crashing to a halt because no one will loan us any more money.

I started worrying about a sudden stop when my wife’s company went out of business in January. It was a 65 year old company with over 400 employees. When the banks wouldn’t renew their revolving loan they went out of business overnight. That’s the sudden stop scenario.

Previously – 80% of mortgages backed by FHA, which is low on funds