As of March 31, 2010, the Federal Government stopped buying mortgage-backed securities.
Well, the way these mortgages are often bought and sold is by being bundled together into mortgage-backed securities. Institutions such as pension funds, hedge funds, banks and investors then buy these large pools of mortgages. Once the financial crises hit and the sub-primes began collapsing, it became harder and harder to sell these pools.
Compounding the problem, as the market began to slide, these same institutions began racing to sell off their packages which threatened to make the recession even worse.
In an effort to slow the values decline, the federal government began buying up these packages. By early March 2010, the Fed and Treasury together became the largest mortgage-backed security investor in the world. They have purchased more than $1.2 trillion dollars worth even though, as with any home loans, they come with some risks.
So far, their efforts to control the slide have worked. Interest rates dropped for millions of homeowners which, of course, helps our economy. It appears that the government is currently making money on the loans they hold.
So, what happens now that they’ve stopped buying? We’ll soon find out. Predictions are that, to begin with, interest rates will climb.
Many analysts believe that, without this government intervention, the housing market would have “imploded” and we could have actually entered into a financial depression.
Bottom line, should we be grateful for the governments efforts to prop up our housing market?