Did You Know The Government Owns 60% Of All US Home Mortgages?
It’s true. The US mortgage market has effectively been nationalized.
Here’s how it happened:
- The Government-Sponsored Enterprises, primarily Fannie Mae and Freddie Mac, issued $7 trillion worth of debt and bought up $7 trillion worth of mortgages and other debt securities between 1987 and 2007.
- They securitized most of the mortgages they acquired and sold them with a guarantee that the buyers would receive full payment of interest and principal.
- Their multi-trillion dollar mortgage purchases pushed up home price and sparked off a bonanza of home equity extraction that drove economic growth in the US for years. It also blew the property market into a giant bubble.
- In 2008 that bubble popped and Fannie and Freddie were taken over by the government to prevent their collapse.
- In 2010, they were forced to consolidate the off-balance sheet entities over which they held effective control. This revealed that they had not really sold the majority of the mortgages they had bought, but just moved them into off-balance sheet investment vehicles.
- As a result, the government now owns 60% of all US Home Mortgages, $6 trillion worth.
The latest Macro Watch video, uploaded today, lays out all the details of how this disaster came about. It also looks at: 1) how the Fed used Quantitative Easing to accumulate 22% of all GSE-related debt, 2) why the US economy remains weak now that the GSEs have been reined in and 3) why the Fed’s threats to raise interest rates could hammer the economy and the stock market.
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