With Fed Ending Mortgage Purchases, Fannie and Freddie Step In — What It Means for Real Estate in Miami and Coral Gables

posted on March 13th, 2010 filed under: Real Estate Market Data, Real Estate News

It might take a little longer for the free market to start peeking through the fog of government intervention.  As noted previously, the Federal Reserve has artificially suppressed mortgage rates by purchasing well over a trillion dollars of mortgage-backed securities (MBS).

Ordinarily, rates would rise if the biggest buyer walked away from the market.  Rising mortgage rates would put renewed pressure on property values here in Miami and Coral Gables, as elsewhere.  But the nearly total nationalization of the mortgage market will not be so quickly abandoned.  Fannie Mae and Freddie Mac recently announced plans to buy back $200 billion of nonperforming mortgage loans at full value.

That’s not the same as buying new mortgages, but will have much the same effect.  The investors who get bought out are in the mortgage market for a reason.  It’s their investing focus.  And they’ll plow a lot of that freed-up money right back into mortgages — maybe not every dime of the $200 billion, but most of it.

Is this another bailout?  Yes, indirectly.  Fannie and Freddie guaranteed that garbage in the first place, so they’re already on the hook for it.  But Fannie and Freddie themselves exist only by dint of taxpayer bailouts.  If you’ve got a claim against an insurance company that gets bailed out, then you’re bailed out too.  Think AIG.

Considering the timeline, an intent to perpetuate the socialization of housing is easily deduced:

09/23/09:  Fed announces it will buy $1.25 billion in MBS through March 2010

12/24/10:  Treasury lifts all limits on taxpayer bailout of Fannie & Freddie

02/10/10:  Fannie & Freddie announce plan to buy back $200 billion in bad loans

Isn’t that special?

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