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The Fed now owns nearly 1/3 of all U.S. mortgages

thestreet.com

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Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#81

Post by clairity »

JackFr wrote: post #25
olliej wrote: post #3

Does the fed get the interest income from those mortgages? Because if it’s not getting 100% of that interest it’s simply bailing out speculative loans by banks. What are the rules for the fed taking on mortgages etc? I would want a max price of 80% of the value of the mortgage alongside the all proceeds portion so that banks can’t just make bad loans and then onsell them to tax payers

Taxpayers don’t need to bail out the Fed. The Fed literally creates money ex nihilo.

> "The Fed literally creates money ex nihilo."

that's too simplistic. the fed has wide latitude (probably too wide), but it should correlate with the (fuzzy, hard to accurately measure/model) productive capacity/velocity of the (globalized) economy, not just an unlimited well only constrained by inflation's devaluatory noose.

moreover, considering our technological progress and trajectory, i'd love to see us revisit the idea that money can only be injected into institutions (via central banks), which was a limitation of scope imposed by the practicalities of pre-21st century life. it's also a gatekeeper's gold mine on a no longer necessary choke point. we should move towards injecting money straight into the hands that create value, not into those of middlemen like bankers.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#82

Post by olliej »

JackFr wrote: post #25
olliej wrote: post #3

Does the fed get the interest income from those mortgages? Because if it’s not getting 100% of that interest it’s simply bailing out speculative loans by banks. What are the rules for the fed taking on mortgages etc? I would want a max price of 80% of the value of the mortgage alongside the all proceeds portion so that banks can’t just make bad loans and then onsell them to tax payers

Taxpayers don’t need to bail out the Fed. The Fed literally creates money ex nihilo.

... um, taxpayers are the fed.

So any time the fed takes on a debt made by a business at anything other than a discount the fed is bailing out bad business decisions, and that means the taxpayer is paying for it.

If the fed just “prints money” to cover those debts the real value of the USD collapses, and that hurts individual taxpayers more than the big businesses being bailed out.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#83

Post by garmaine »

baconandeggs wrote: post #56
refurb wrote: post #44

Earlier quoted context omitted.

Countries are buying US gov't debt because: 1) they have a lot of USD due to exporting goods to the US and 2) it's one of the safest places you can park money. Sure, it would be bad if they dumped treasuries (at a big loss), but why would they do that if they put the money there in the first place because it was safe?

They will dump them because they will need the liquidity.

Or because they expect the era of stability to be over.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#84

Post by pieno »

adventured wrote: post #36
remote_phone wrote: post #8

Earlier quoted context omitted.

The worst case scenario is the rest of the world dumping US treasuries, and causing interest rates to skyrocket and USD to plummet.

The ECB has 2x the portfolio size as a share of GDP as what the Fed does. The Bank of Japan's portfolio is about 4x the Fed on that metric. Why isn't the Eurozone collapsing, with interest rates skyrocketing and the Euro imploding? Somehow Japan is still managing - despite a public debt & budget situation several times worse than the US - with a GDP per capita still on par with Britain, France, and just below Germany…

Not really.

ECB balance of assets purchased: €2.9tn(August 2020) Eurozone GDP: €11.9tn (2019) So 24%

Fed balance of assets purchased: $6.3tn (September 2020) US GDP: $21.4tn (2019) So 29%

Even if you look at total assets on the balance sheet (Including assets purchased outright and collateralised loans), the difference is not that huge: ECB: €4.7tn (39%) Fed: $7.0tn (32%)

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#85

Post by refurb »

patd wrote: post #63
refurb wrote: post #47

Earlier quoted context omitted.

What was the term? Was it a floating rate after a lock-in period? The thing that makes 2.5% so incredible in the US, is that it's the rate for a 30 year fixed mortgage. Get one of those loan today and you'd still be paying 2.5% interest in 2049.

You can get fixed 15 to 30 years mortgage rate in some European countries for less than 1% in some cases and 2% in most cases.

Which countries? I’m curious.

Edit: Denmark apparently!

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#86

Post by wonder_er »

JMTQp8lwXL wrote: post #18

I would be curious to see analysis for what home prices would be with 0 Fed intervention. Also, I don't understand how millennials aren't supposed to see this figure and immediately feel a sense of rejection, that the housing market is some form of a pyramid scheme, where you had to get in early to have a chance.

> Also, I don't understand how millennials aren't supposed to see this figure and immediately feel a sense of rejection

Millenial here. 100% agreed with this. Feels like a big blind spot in the boomer crowd. They don't seem to see the seething, roiling, overpowering resentment their entire generation is receiving from many, many people that currently don't have much power in society.

A politician wants to win office, and lower the probability of a civil war.

Recognizing politicians historic-low approval ratings, a politician would propose something radical:

1. Make student loan debt equal under the law to any other form of debt

2. Implement a national zoning system similar to Japan's zoning[0], eliminating the housing crisis, rolling back a century of racist and exclusionary laws that ruin lives and act as an enormous drag on everyone in the country. Hundreds of millions of Americans are now richer and much more at peace with each other.

Said politician would instantly win the popular vote. Unfortunately, these policy positions are at odds with power brokers in the USA, so no politician will ever seriously propose these policies, or they'll get to office, and be informed that these policies are no longer going to appear in their speeches.

[0]: https://urbankchoze.blogspot.com/2014/04/japanese-zoning.htm...

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#87

Post by inglor_cz »

refurb wrote: post #41
scrumbledober wrote: post #34

Earlier quoted context omitted.

well as a 30 year old looking for my first home who grew up in the bay area... yeah that's exactly what I feel.

Not to be snarky or obvious, but you should do what the people in the past did - find a better place to live that allows you to buy a home more easily. That's one of the reasons why there was a big migration to places like LA. Lots of jobs and cheap land to build on. To me, SF is like NYC. Unless you got in early or are one of the 1%, it's not a great place to try and build a life in (if you're looking to own a home)…

We are having precisely the same convo in my family, in the Czech republic.

My wife is from Prague. A gem of a city, but unaffordable. Too much speculative capital from Russia, China etc. Being a slave of a mortgage until 70 is a ghastly prospect.

I am from Ostrava, a post-industrial city where property prices are about a third of Prague level. Incomes are lower, but not that much lower. For an accountant (my wife is), the difference is about 10 per cent. Overall, much easier to sustain middle class life standard.

She does not like the idea of leaving her native city, but if we manage to have a child (still a very open question), we will have to, at least for a few years.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#88

Post by rebuilder »

wonder_er wrote: post #86
JMTQp8lwXL wrote: post #18

I would be curious to see analysis for what home prices would be with 0 Fed intervention. Also, I don't understand how millennials aren't supposed to see this figure and immediately feel a sense of rejection, that the housing market is some form of a pyramid scheme, where you had to get in early to have a chance.

> Also, I don't understand how millennials aren't supposed to see this figure and immediately feel a sense of rejection Millenial here. 100% agreed with this. Feels like a big blind spot in the boomer crowd. They don't seem to see the seething, roiling, overpowering resentment their entire generation is receiving from many, many people that currently don't have much power in society . A politician wants to win office…

What would the effects of changing the student loan system be? I assume you mean to increase the creditor's risk to levels comparable to other types of debt. Personally, I'd expect that to result in higher interest rates for student debt, and more stringent eligibility requirements. IOW, a higher barrier to entry to education.

Maybe that would be good, it depends on how the price of education would react, and in whether a high level of education is seen as a positive or not.

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#89

Post by divbzero »

nostromo wrote: post #57

The headline isn’t correct. There is $17T in US mortgage debt. The Fed has backed $2T of that via mortgage backed securities, up from $1T pre-Covid-19. That’s ~11% not 1/3. The article itself mentions this, but decided to use a misleading headline instead.

Thanks for pointing out the misleading headline. I double-checked your dollar value for total US mortgage debt and it’s in line with what the Fed reports. [1]

The article correctly shows that the Fed is still buying more government debt than mortgage backed securities. As of June 2020 the Fed owned over ⅕ of all US government debt and over ⅓ of longer-dated US government bonds. [2]

[1]: https://www.federalreserve.gov/data/mortoutstand/current.htm

[2]: https://www.economist.com/finance-and-economics/2020/06/18/t...

Re: The Fed now owns nearly 1/3 of all U.S. mortgages

#90

Post by rebuilder »

refurb wrote: post #41
scrumbledober wrote: post #34

Earlier quoted context omitted.

well as a 30 year old looking for my first home who grew up in the bay area... yeah that's exactly what I feel.

Not to be snarky or obvious, but you should do what the people in the past did - find a better place to live that allows you to buy a home more easily. That's one of the reasons why there was a big migration to places like LA. Lots of jobs and cheap land to build on. To me, SF is like NYC. Unless you got in early or are one of the 1%, it's not a great place to try and build a life in (if you're looking to own a home)…

This is a side effect of urbanization. Economic opportunity is increasingly concentrated in cities and the increased demand inevitably increases the cost of housing.

If that cost becomes too high relative to the income increase gained by living in, say, SF, people will certainly move elsewhere. But they'll still largely move to cities, and the cycle will just repeat there.

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