Anyone see this report on CNBC? It does a great job of outlining the breakdown of the mortgage financing debacle at all parts of the transaction - loan origination, mortgage bundling/securitization/sale on secondary markets, credit rating providers, end investors.

Here's a link to the article w/ times of the replay: http://www.msnbc.msn.com/id/29163182/

If investors have no appetite for mortgage backed securities in the future, the secondary market will be a fraction of what it was at its peak. And if that's the case, then banks/lenders will always have a limited ability to replenish funds to offer new mortgages to buyers.

If, going forward, the secondary market is (for all intents and purposes) gone, then lenders will have to lend from their own portfolio - which will do two things: 1. limit the supply of money for mortgages, and 2. tighten underwriting guidelines even more as lenders will now have their own funds at risk.

MBS definitely left a bad taste in a lot of investors' mouths and the prospect of there being no secondary market is pretty scary. For all practical purposes, we're already there - there is no secondary market for paper, other than Fannie and Freddie backed mortgages which already places a huge limit on the availability and diversity of mortgage product. I think things will improve though - as soon as people are convinced home prices have bottomed out, investor appetite will resurface, though there will probably be a lot more oversight and insurance required on the securitization process.

It is a great article and so very true. Thank you.

When did Americans start remembering anything negative after it has passed? 10 years from now this will all be ancient history and people will be making the same mistakes all over again.

I wish I had a remote and could fast forward.

That isn't how banks operate, El Luchador. Banks have an unlimited supply of money to lend as long as they can get a down payment out of the buyer. They actually use it to borrow more from the FED. They just tighten-up on guidelines to stay in business. That's how it works.
They don't use their own funds to lend, they just take on debt at a lower rate then they charge, and sell the paper or hold it.

"If investors have no appetite for mortgage backed securities in the future, the secondary market will be a fraction of what it was at its peak. And if that's the case, then banks/lenders will always have a limited ability to replenish funds to offer new mortgages to buyers.

If, going forward, the secondary market is (for all intents and purposes) gone, then lenders will have to lend from their own portfolio - which will do two things: 1. limit the supply of money for mortgages, and 2. tighten underwriting guidelines even more as lenders will now have their own funds at risk."

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DPaccess -

Oh really? Unlimited funds...for mortgages? Tell that to Indymac Bank et al. See link below:
http://www.marketwatch.com/news/story/secondary-mortgage-market-still-crisis/story.aspx?guid={3B7A28B7-6EF7-424F-AE1A-AEDF5C5AD60D}


Yes, lenders have different ways of sourcing funds, however, half of all single family mortgages were funded by the secondary market and no other vehicle exists which can replicate its function at the same level.

Freddie Mac's website:
http://www.freddiemac.com/corporate/company_profile/our_mission/secmkt.html

Fannie Mae's website:
http://www.fanniemae.com/aboutfm/industry/index.jhtml?p=About+Fannie+Mae&s=The+Industry