Posted by: John Gilmore | September 16, 2006

Federal Reserve Buys More Than 100% of Mortgages Issued in 2009

It appears that lots of things in the financial world are being ‘propped up’ by the Fed (see article below by Chris Martenson). Once again we see another Fed ‘operation’ where they print money out of thin air to support a piece of the system.

Even if we assume that the Federal Reserve is acting in our best interests by printing all of this money – it’s easy to see that this cannot continue indefinitely. At some point, all of the government and Fed programs to support our economy must end. This, in and of itself, is reason enough to be concerned for our future.

As you’ve seen me say before – this goes much deeper than what we’re told by our political and financial leaders. If we look a little deeper into the history of the Fed – the ownership of the Fed – and the underlying motives of the people who own the Fed – we get a true picture of what is happening.

The truth is that we have been setup on a massive scale. The institution that controls our economy – is now in a position to collapse our entire monetary/economic system at will.

The question that remains: will it be everything at once like a house of cards (stock market, housing market, value of the dollar, interest rates and Treasury auctions) – or will it be one at a time – like a bunch of dominoes – with one domino starting the fall of all the others?

I do know that however it starts – it will spread very quickly and eventually affect everything. We are teetering on the edge of a very large abyss.

Pay very close attention to how it starts.

John – September 28, 2009

Federal Reserve Buys More Than 100% of Mortgages Issued in 2009

Monday, September 28, 2009, 11:13 am, by cmartenson (Chris Martenson)

What follows is a snippet from the most recent Martenson Report (Housing and Wealth: Part II).

This is important information. What I’ve found and present below is that the Federal Reserve is not just supporting the housing market, it is the housing market.

Just as important as a person’s desire to buy a home is their ability to gain access to mortgage funding.

The mortgage market is a gigantic beast with many moving parts, but it is pretty easy to understand from a high level.

The process works like this: A homeowner secures a mortgage from a bank or mortgage company. Then the mortgage is sold off to another company, with the cash generated by that sale now available to lend to other potential homeowners. Ultimately the mortgage may pass through several sets of hands but ultimately it lands with a terminal holder.

In that chain, the mortgage might get sold off several times, or perhaps sliced and diced by Wall Street wizards, but all that matters is that some company (with cash) is there at the end to buy the mortgage to keep the whole chain moving along.

Lately, the “terminal buyers” in that chain have increasingly ended up being the federal government (through the GSEs) and the Federal Reserve.

And not just by a little bit, but by a lot.

Here are the numbers:

So far in 2009 (through August), a total of 3.2 million existing homes were sold for an average price of $217,000, while 263,000 new homes were sold for an average price of $264,000.

Taken together, and assuming that we live in a world where 10% is the average down payment, we get this table:

That is, a total of ~$686 billion in new mortgages were issued in 2009 (through August).

Now let’s look at how many Mortgage Backed Securities (MBS) and agency debt obligations were accumulated by the Federal Reserve on its balance sheet over the same period of 2009:


It turns out that in 2009 (again, through August), the Federal Reserve has bought $624 billion of MBS and a further $98 billion of Agency debt, for a total of $722 billion in money injection into the housing market through Fannie Mae, Freddie Mac, and the FHLB.

In other words, the Federal Reserve alone bought $722 billion of mortgages and agency debt when only $686 billion in new mortgages were issued. So, through August, the Fed bought more than 100% of the entire supply of mortgages in 2009.

That’s not a free housing market; that’s a market bought, owned, and sustained by the Federal Reserve’s willingness to print up three quarters of a trillion dollars out of thin air.

While the individual mortgages issued in 2009 may or may not be the exact same ones purchased by the Federal Reserve, that’s immaterial. All the mortgage issuers care about is that when they issue a mortgage, a purchaser with money exists somewhere down the line. The chain needs a terminal buyer, and that buyer has become the Federal Reserve.

The impact of these purchases by the Federal Reserve is to both provide liquidity and to drive down the rate of interest for new mortgages. By lowering both the long end of the Treasury curve (which the Fed does by actively buying Treasuries) and providing more than sufficient demand for MBS and agency paper, long-term interest rates come down.

Without the Fed’s activities, it is a rock-solid certainty that mortgage interest rates would be higher than they are, and possibly a LOT higher.

What all this means is that when (not if) the Federal Reserve begins to try and unwind itself from all of the magnificent interventions of the past year, it must contend with the fact that it is the housing market.

Where the Fed is hoping that it can gently release the soft chubby fingers of the housing market, which will then toddle off under its own power, it will discover that it is actually carrying a helpless newborn.

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