bostonbubble.com

[Renting in Mass]

The federal government was responsible for up to 95 percent of all new home mortgages in the fourth quarter of 2009.

That's stunning.

[balor123]

Check out this post. There's a comment that even specifically mentions MA. The suggestion is that interest rates should be 6% based on historical spreads. I would imagine that most traders would consider mortgages to be more risky now than historically, though. If inflation picks up, then even 7% isn't out of the question, with or without inflation. That implies another 10% - 20% drop. The only way it can be avoided I think is if the monster MBS purchase scheme continues but I don't think that it can as it won't be contained to just the Fed for much longer, in the same way that housing took down the economy.

[Renting in Mass]

Great article. Thanks for the pointer.

One would think that the US government can't buy all the mortgages forever. The FHA's reserves are going to hit zero pretty soon. I guess the Fed could just dump in a couple 100 billion more, but it's go to end somewhere, right?

I enjoyed the description of what it would take for this not to end badly:

1. Strong economic recovery (real GDP growth above 3.5% for the entire year)without a push in inflation and interest rates .

2. Adding at least 3,000,000 jobs from current levels.

Yeah, good luck with that!

It's pretty clear that we're stuck with option 3:

Revision of the Fed/Treasury plan to exit the mortgage market.

[balor123]

Option 4. Greece defaults on its debt. Spain follows and currency/sovereign debt crisis follows. States follow suit but the Fed bails them otu. Second wave of foreclosures hits and the potential bill of a second bailout looks really big, especially with everyone terrified about the unthinkables happening. Fed decides to focus on improving exports rather than betting the ranch on the Ponzi scheme known as housing.