The effect can only help the economy and not effect inflation.
Here’s the quick down and dirty by going backwards:
Fed buys Fannie Mae paper
Fannie Mae buys loans from XYZ Lender
Lender buys loan from Broker
Funds given by buyer to seller
Seller pays off existing mortgage and walks away with very little money from sale.
So, seller is released from debt they could not pay, jobs are being created by the broker, lender and Fannie Mae employees getting paid.
New buyer gets an affordable payment on a home that now pays for paint, furniture, etc.
How about a refi so say?
Simply, the borrower gets a cheaper payment or cash out to spend. That stimulates and economy.
And the Fed gets the principal back AND interest. It’s not a bailout and it does not push inflation.
And until the institutions that become satisfied that they are buying what is promised, the Fed must be the buyers of mortgages to keep rates low and flowing.
Ken Montville
December 25, 2009 at 9:57 am
You get a gold star on your chart for:
a) posting something on Christmas day (even if it was scheduled ahead of time) and
b) coming up with a way to save the housing industry and, by extension the entire economy.
I think a lot of the money is going to Fannie and Freddie executive compensation, though. They need it, don’t you think?
Thomas Johnson
December 25, 2009 at 3:27 pm
This was the original plan from Bernanke Paulson in 2008. It lasted 72 hours until they figured out that all the MBS’s had been sliced diced into paper that obligated AIG to pay Goldman Sachs billions. Shoveling cash to Goldman from the US Treasury was more important to Paulson and now Geithner than saving a few million homeowners who are too dumb to realize that America is being looted with the greatest Ponzi scheme in history right under our noses.
tradersnarrative.com/is-it-all-just-a-ponzi-scheme-3393.html
Ken Miles
December 26, 2009 at 3:46 am
Without oversimplifying this too much, here’s the passage that jumped-off the page for me: “New buyer gets an affordable payment on a home that now pays for paint, furniture, etc.”
This is a prime example of what is standing in the way of the housing rebound by my estimation. Everyone is holding onto every last dollar of their disposable income, and the trickle-down effect is devastating.
We have to get that everyday money flowing again – and sooner than later! If, as you suggested, this means the Fed must be the buyers of mortgages to keep rates low and flowing, well then so be it. There isn’t going to be an economy left to fix if we don’t get on with it already.
Fred Glick
December 26, 2009 at 9:25 am
@Ken Montville. Surprise…I did it live!
I know this makes too much sense, but let’s call your Congressperson and suggest it.
Also, if Benny B is done celebrating the holiday, maybe you can get him on the phone and let him know too!
Happy New Year, all!
F
Portland Condo Auctions
December 28, 2009 at 5:56 pm
The Fed itself is a scary thing. A self regulated company that is in charge of all of our money? It is not even a true gov organization. I could not support anything that made Fanny and Freddie any bigger than they already are. Those are two other giants that are self regulated companies with little oversight that have nearly as much power as a government entity. Too big to fail is too big in the first place.
-Tyler