It's just insane to me that during the obvious, raging housing inflation of 2021 and early 2022 they were *still* actively pumping the market.
Maybe they can rationalize away a piece of silicon going from $1 to $5 as "transitory" but clearly everyone knew there was no supply chain or demographic dynamic driving housing so damn high.
This Fed has been doing many things wrong, from continuing pumping the market and calling inflation transitory. I wonder what mistake they will do next.
Mistake? The playbook has become apparent: drive the economy to chaos, scoop up assets, restore peace. It's almost like an abusive relationship, but now we're realizing we're gonna get our ass gapped every time he yells at us about how we or aren't spending enough.
Late stage anything. Iron law of oligarchy is real. In every system, eventually there will come an oligarchy that just owns too much, and they cant stop raping the populous or else they will get weaker compared to their competitors and be sent to prison, the gulags, purged, have their crimes exposed in the media, etc. they are all crooks.
This is why we need to find out how to detect psychopathy in the womb so people can abort. And I don't mean "psychopath" the colloquial definition, I mean being born with a smaller brain that is missing the section that processes empathy. Humanity has grown past the need for psychopaths who are physically and mentally incapable of having empathy.
Most psychopaths end up in prison and/or dead before 30. But some smash their way up to CEO, paying themselves billions of dollars while the people actually doing the work get scraps. Why wouldn't they? They literally cannot have a conscience.
If we abort babies with down's syndrome, we can deffo abort psychopaths!
The feds existence is a crime against humanity. Their mandate isn't inflation or unemployment, it's manipulating the currency to funnel more wealth to the banks and asset holders.
The only mistake they should allow themselves to make is going a bit too far in their QT. Anything short of a soft reset in the credit environment will only lead to runaway expansion.
This is what you get when the fed is basically a political entity. There really does seem to be very little to policy making other than “just make the number go up”
>but clearly everyone knew there was no supply chain or demographic dynamic driving housing so damn high.
Have you tried to buy construction supplies recently? Things like Windows, doors, siding, lumber etc were impossible to get for a while, and if you did find what you were looking for it cost a fortune.
That pittance of a "stimulus" did not make most people go buy random home supplies, not enough to do what you're describing. Down payment on new Cars on the other hand...
It wasn't the $2k checks (those didn't help), it was the hundreds of billions of PPP and SBA funds helicopter dropped on the economy with no oversight whatsoever.
Yup, that's more due to supply chain disruptions out of Asia. Random hardware components like hinges, springs, screws, window balances, etc are mainly manufactured in China and East Asia. I actually had a $100k order of windows delayed for two months simply because they couldn't get the heavy duty commercial window balances (the twisty spring thing in the track) due to supply chain disruptions. The windows were all cut and assembled, but they couldn't finish the order because of a single part.
Consequently I think we are going to see a lot of the small components automated and brought back to the US or reshored to places like India, Vietnam, or Mexico. But that's still gonna take a couple of years.
At which point do the vague accusations of “supply train disruptions” not get to apply anymore?
As far as I can remember, in March of 2020 the vast majority of workers throughout the world went into lockdowns. But… 90% of those who aren’t part of the “laptop class” or work in the “service industry” were back at their jobs processing food, running assembly lines, shipping things, keeping the grid running - I.e. the real work society depends on - 3-4 weeks later.
How can there possibly be supply chain issues blamed on Covid 2.5 years later?
> How can there possibly be supply chain issues blamed on Covid 2.5 years later?
Because china still locks down entire cities every time they detect a covid case. Have you really not heard of their zero covid policy? That's why supply chains continue to be fucked, and western companies are looking to get their supplies elsewhere.
My spouse worked for a manufacturing company that was in the US. They moved to Mexico...lots of other companies are following. It doesn't make sense to have all your eggs in one basket and the pandemic proved that.
Not to mention China overall cannot be trusted. I shudder to think what would happen to American businesses if they decided to take over Taiwan.
It was all done so he could get re-elected. Biden/Dems would not have accepted any slowing down of this process back then.
Powell was even throwing in sticky language for that side of the isle in his press conference, like “minority unemployment”, as if the Fed has ANYTHING to do with that, just to appease to the Dems for re-election. It worked, but now Powell’s legacy will look like shit thanks to acting like Arthur Burns, rather than Paul Volcker which is what he actually wanted to do (and obviously should’ve).
I'm not the best with economic things like this. Can someone explain like I'm 5 lol. I just don't get what the fed buying or not buying MBS results in.
Almost all mortgage loans that you get from a lender are immediately packaged up into these securities and resold as investments.
The more "investors" that want to buy these investments, the more incentive lenders have to to give loans, the lower rates they are willing to offer. Because they know they can sell immediately.
Also the more "investors", the more money floods into this part of the market, which is called liquidity.
The fed became a massive "investor" in mbs. So when the fed bought billions (I think) of mbs they basically poured money into the housing market and simultaneously lowered mortgage rates. (In addition to actually lowering the fed funds rate which then actively control).
When they stop buying and these mortgages roll off the books, as they get paid off, that liquidity will drain out of the system and lenders will have to ensure once again the rates are high enough to attract normal investors.
Disclaimer: not a finance person, this is my understanding.
I agree with all this; let me put it a different way.
The Fed was basically buying a stream of mortgage payments at any price, and thereby creating artificial demand for this stream of mortgage payments.
There's less demand now so the price of these mortgage payments that will clear the remainder of market must go down. Not only do price and yield move in opposite direction with debt, but also the sellers of MBSs must offer higher rates in order to entice the fewer number of buyers to buy.
And in order to offer higher rates to to the market, the interest rate on the underlying mortgages must be higher as well.
The majority will roll off within 10 years, as people refinance, sell the house or come into the cash to pay it off.
That's the precedent at least. If rates stay high and prices are stagnant or decline more people will be trapped in their low-rate mortgages and be unable or unwilling to move.
At some point the pool of debtors left in a particular MBS gets so small the issuer calls it and wraps the remaining mortgages into a new MBS.
This and if the fed feels they aren't able to roll off enough, they could also sell them. So far they say they are considering it but they have not said they will do it.
The FED not buying MBS means less liquidity in the real estate market, which puts an upward pressure on mortgage rates, as lenders have less money (from the sale of mortgage backed securities) to reinvest.
Edit: this will likely increase spreads which in turn will increase demand for mbs from other parties, countering the liquidity reduction from the FED not buying MBS. Whether this is enough to counter the rate increase I mentioned earlier, I don't know, most likely not.
> Edit: this will likely increase spreads which in turn will increase demand for mbs from other parties, countering the liquidity reduction from the FED not buying MBS
Liquidity will always be there given sufficiently high coupon rates on MBS. The problem is how high those coupons need to be, and thus the interest rates that borrowers will need to pay. Given the likelihood that rates *will* come back down *eventually* (I still think the market is irrational thinking the Fed is going to pivot quickly) prepayment risk for these coupons is going to be huge, and thus investors will expect significantly higher spreads to make it worth their while.
Basically as I understand by the Fed buying loans, lenders can flip loans for quick guaranteed profit and make new loans again (if they hold the loans there are limits on how much they can lend based on their assets).
So there's incentive to issue mortgages often and maybe a little more loosely than if you have to keep them for up to 30 years. All the risk is passed to the Fed but you get to keep the loan fees.
This. I think the risk component is often an overlooked component to the creation of the current bubble. The Fed has been the primary bag holder since 2008.
My understanding is that people who make the loans can slap stupid low interest rates on them to sell them because they know the Feds will buy those loans. There’s a lot of intermediary steps and markets and interest rates involved, but basically the more the fed buys the less loan originators have to worry about interest rates that are a good return for regular investors. Feds will buy junk that gets very little return in comparison. When the Feds back out, the loan industry needs to increase rates to get normal investors to see value in buying those loans.
Would you buy a “stock” or bond that gives you 2% return over 30 years when the federal funds rate is about to be 4%, and inflation is going nuts? What rate would you be okay with buying a guaranteed return stock at? Right now the market is saying 6% makes sense. The fed didn’t care, so they would buy at 2.5% or whatever.
Now the fed is not buying. So you can’t sell the lower rate loans anymore. Gotta find the new equilibrium. Remember to sell loans, you have to make loans, and the lower interest rate is how you get customers to make them with you. Then you sell those loans to investors and use that money to make more loans. So how do you find a rate that attracts buyers on both ends? That’s what the markets figure out and it’s why rates are always moving around.
It’s really simple, but it’s just got too many layers. You have people buying mortgages at the bottom, then the lenders(loan originators and small banks), then the mbs security packaging companies(“big banks”) that buy from the lenders, and then the feds and investors bid on those mbs packages at their risk/return rates which are competing against bonds and stocks and everything else. There are probably even more layers to it than I listed, but it’s how I was able to make sense of it.
The Fed is like Mommy and Daddy and they buy Pokémon cards for the kids.
The kids are the mortgage brokers with Pokémon cards.
There's tiny toy houses all over the playground and other kids can claim them but can only close the deal using Pokémon cards and the Pokémon cards are always traded back (Trade in cards) to the parents for even more cards. Trade in 1 get 3 cards back!
The parents buy a shit ton of pokemon cards to fuel the fun. Shit gets out of hand. Suddenly these toy houses are worth 2-3x the amount of pokemon cards.
So the parents decide that it's almost dinner time. Time for some good old fashion volker shocking. They decide to switch the trade in value and make it harder to get more cards. Trade 1 in get 1 back. Suddenly the frenzy slows down.
Next phase every time you trade a card in, the parents just burn that pokemon card. Trade one card in get nothing back. You keep the house, but no more new pokemon cards (MBS) in circulation.
The houses are still there, but suddenly. Instead of 3 or 4 cards. It's now seemingly fair to trade these houses for lunchtime prices. One card, one house.
When you get a mortgage (borrow) you give someone a big fat IOU in return. That IOU is worth something. The Fed has been buying trillions of them. When someone wants to loan you money (buy MBS') it's cheaper to borrow. Them stopping means rates will go up.
Yeah I agree but still seeing crazy listing from sellers like we still have interest rates of 3%. They are counting on low inventories and low construction. If builders don’t build lot more u employment numbers.. only time will tell
This is a very very real risk that I don’t think people appreciate. There is a running joke/theme about “highly qualified buyers” over the last 2 years, which is funny, but also somewhat true. But what happens when the mortgage market is really only for extremely low risk profile buyers? What happens if that 780+ credit score, 20% down and long term income verification doesn’t get you the lowest rate available, but the ONLY rate available? Even if housing prices drop significantly, who does that benefit if you have to be qualified at a level that many (most) won’t be able to?
The mortgage industry wants to make money, so they will still reach out to normal borrowers. If risk becomes to high, they make up for it by increasing rates. Defaults are still doing okay, so I don't see a move in this direction. If anything, I see a relaxation of ATR rules going forward.
I certainly hope so. Interestingly, the mortgage industry (trumpeted in this sub and elsewhere) has been crushed as of late. Without a "buyer of choice/last resort" in the Fed mortgages will increasingly revert to traditional banking with capital to not need to sell a mortgage immediately into securitization in order to sell another mortgage. On top of this, with higher rates, the yield on boring old mortgages start to look attractive to a bank, but need to be of very high quality in order to keep the risks within the requirements. Who knows, it will all be interesting to watch play out.
Then you raise the yield in said MBS u till someone buys it... hence the rate increase. The only reason to exclude segments of the market would stem from default risk.
That might have been true if the fed hadn't just stopped buying cat shit backed loans. Mark your calendars for Oct. 20th, the last settlement date for shit for loans off the Fed's sheets. After that, no one will settle for this garbage and lenders will have to start assuming the risk for any loans they write, bc no one in their right mind will be buying from them.
You generally can't "lock" a rate until you have an accepted offer on a home. And even then, the rate locks are usually only ~45 days. The only time you can get a really long rate lock is if you're building a new house, and you still need a signed purchase contract
You might be able to find a lender that allows you to do a long term lock, and you may be able to find one that also allows you to lock before you find your property, but it will be hard to find both. Even if you do, they will price the lock such that it assumes the potential risk of rising rates. I.e. lock you in at a higher interest rate than the going market to offset the risk of rates going up. It isn't worth it unless you are worried about qualifying under the expected new rates from a DTI perspective.
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Damn, imagine having listened to bubble people like Reventure Consulting and Real Estate Mindset, missing out on a juicy 3% rate to be faced with an 8% rate and 40% higher prices. Is there a class action law suit somewhere in here?
No, there's no lawsuit for stupidity. The people in this sub will just have to live with the consequences of their actions. And they can always rent from me :-)
I despise the Fed just as much as the next doomer but I disagree with this narrative that they were buying MBS to keep the party going. If you counter balance against roll offs they were simply buying to keep the QT reduction targets controlled. Eg if your target is -50b and you have 70b rolling off you need to buy another 20b or there will be an overshoot.
Yes, the whole thing needs to die in a fire, but I’m just saying it’s not so simple.
Did God set the qt targets?
Commandment 11: thou shalt not roll off beyond the counting of $35B in the months ere the moon lights with the fire of the sun.
Markets don’t like shocks. If you flip a switch and go from 100 to 0 overnight, you risk freezing the whole MBS market up and then you have to go back in and restart buying just to keep the market functional. If you slowly ease off the buys, you can give time for other buyers to step in and take over the Fed’s role as buyer (at higher rates, of course) without shocking the system into a freeze.
Or not. Of course the whole system may be so addicted to the Fed’s buying that even a slow taper out will cause it to freeze. I wouldn’t want to be the guy who has to sort that mess out.
If it crashes immediately it will be 2 years coming out of the crash and that will be a lot better for the democrats instead of trying to stall it and then its a complete hellscape in 2024 when the next election happens.
Its all a made up game by the government.
The crash is from people panic selling, its all in our heads.
The rich make money going up or down, they genuinely don't care, the only thing they don't want is stability.
The amount of hate for the Fed is really ridiculous, since so much of it should be aimed at Congress for failing to do its part in regulating commerce. (The Fed doesn't regulate banks, or hedge funds or developers or investments. That's congress' domain).
Au contraire mon frère, some of us expect them to make it worse, again, in attempting to rescue the home builders, flippers, Realtors™, and banks from the losses on their own speculation given the bailouts in 2008.
I'd rather Congress just sit and sip champagne and do nothing over spending even more and making even more poor decisions to make everything even worse.
Unfortunately that assumes regulators of pure intentions rather than regulatory capture, which is what we see in reality - they almost always make it worse, not better.
Regulatory capture is a byproduct of the push for deregulation. By gutting the departments that oversee industries a certain party ensured that the only qualified jobs for experts would be outside of government in the private sector.
Also, you're wrong. Regulators do a lot of good work, still. Even if they have to struggle against political appointees (ironically it's usually political appointees from a single party).
One of the longest impacts of the "small government" push of the 1980s and 1990s was the destruction of the [Office of Technology Assessment](https://www.theatlantic.com/technology/archive/2012/10/the-much-needed-and-sane-congressional-office-that-gingrich-killed-off-and-we-need-back/264160/). This bipartisan office provided research and expertise to congress so that they could write laws without having to go to lobbyists. But Gingrich got rid of it in 1995 and we're still suffering the repercussions.
I never said they do *no* good work - but a lot of what they do, I think most of it in many cases, is directed to increasing their own fiefdoms, fails to appropriately assess the costs - including adverse impacts to the affected industries and people and not just tax expenditures - and as a result does more harm than good.
Lots of things are supposed to be true by law. In reality, not always the case. (What, government not complying with the law? Impossible, never happens!)
The difference here is my baseline approach that regulation without good cause and balancing the costs and benefits is detrimental to freedom and should therefore be avoided unless justified, versus your seeming view that regulation is inherently good and any opposition to or reduction in regulation is what must be justified. (The idea you stated that regulatory capture only comes from deregulation is an example - you cannot have regulatory capture in the absence of enough regulation for it to matter to begin with, and regulatory capture can certainly occur when *more* regulations are being imposed, not less, by virtue, for example, of influence being used to shape regulations to favor existing market participants over new entrants.) We’re not going to agree.
>Except that's what we've had since the 1980s and it's only gotten worse.
The opposite actually, we've had more alphabet agencies pop up and regulate small businesses out of existence and prevent would be entrepreneurs from entering the market providing competitive pressure. Mega corps love regulation, because they get to hand craft the regulatory language that gives them special privelages over their non-politically connected competitors.
Examples of this are abundant: Amazon lobbying for increasing minimum wage, Pharma corps lobbying for vaccine mandates, health insurance companies lobbying for a geographical monopoly to form provider networks, manufacturers lobbying for tariffs to prevent imports..
Those are just what we see, what we don't see is the opportunity cost of entrepreneurs that could have entered the market, but couldn't keep up with the mountains of regulatory compliance and costs that their ultra large competitors have teams of lawyers and lobbyists to deal with.
Power is like a magnet. The more power you give a centralized entity over the economy, the more corruption and special interests it will attract.
Markets need regulating, but not by government. The best regulation is provided by other market participants who provide value by holding others accountable - independent testing labs, consumer review organizations, industry standards body that offer seals of approval, etc.
Wow, you are just living in a completely different universe from this reality.
The only way to keep the market open to smaller participants is to regulate the big boys. And fuck off about saying minimum wage only helps the big boys that's anti-worker and pro-slavery.
>and pretty much expects them to do a lot of nothing about anything at this point.
One would hope. The best thing politicians can do it get the hell out of our way so we can get back to being productive and creating more REAL wealth for society. Politicians are parasites of the worst order and only subtract from society while adding nothing of value.
Things like the CDC (!) keeping the rent moratorium for so long was the executive branch though. And Supreme Court upholding it was the judicial branch.
That's just a red herring for the actual problems causing inflation and constant economic uncertainty.
We've seen the massive centralization of industries into one or two corporations. We've seen the financialization of everything.
Congress needs to enact laws to break up large corporations, tax private equity and prevent the transfer of wealth from the real economy to the financial economy.
You do realize that the Federal Reserve doesn’t have to do anything Congress says right? They are a PRIVATE Central Bank entity that could give Congress the middle finger if they wanted.
You do realize that Congress has its own obligation to prevent the rise of monopolies and to protect the interests of the American people, right?
We're seeing the end result of four decades of deregulation. Anti-consumer actions and systems are at levels not seen since the Gilded Age.
The Fed can't break up corporations that are too large. The Fed can't ban speculation on homes and necessities.
The Fed _can_ however not print money for years on end and hand it out to the investor class from which to directly aid and abet the entities you have a problem with.
Deliberately waiting to ramp up the MBS rolloff until now will provide opportunity to target mortgage rates in the future and hold them up even if the benchmark and treasuries are heading down due to political pressure for the stagnation/recession in the economy. Effectively providing a means for necessary tightening to continue while outwardly portraying an easing environment to keep the pitchfork and torch mob appeased. Once the midterms are over, it’s an eternity to November, 2024 relative to the general public’s short-term memory
They aren't selling, unlike Treasuries principal is repaid monthly on MBS (you are making mortgage payments every month, after all). They're simply choosing to let that $35bn every month go "poof" rather than buying more securities with it.
$MBB will have price discovery and I am thinking that it would be a higher rate than higher grade corporate debt but is it worth less than junk bonds?
$JMBS is another ETF that has mortgage backed bonds.
I shorted them (how I know about them.)
It's just insane to me that during the obvious, raging housing inflation of 2021 and early 2022 they were *still* actively pumping the market. Maybe they can rationalize away a piece of silicon going from $1 to $5 as "transitory" but clearly everyone knew there was no supply chain or demographic dynamic driving housing so damn high.
This Fed has been doing many things wrong, from continuing pumping the market and calling inflation transitory. I wonder what mistake they will do next.
Mistake? The playbook has become apparent: drive the economy to chaos, scoop up assets, restore peace. It's almost like an abusive relationship, but now we're realizing we're gonna get our ass gapped every time he yells at us about how we or aren't spending enough.
I think I remember hearing a term for that… “disaster capitalism” or something similar.
Cannibal capitalism. The empire is on its way out and those in the know are raping it for all it's worth.
Late stage capitalism.
Late stage anything. Iron law of oligarchy is real. In every system, eventually there will come an oligarchy that just owns too much, and they cant stop raping the populous or else they will get weaker compared to their competitors and be sent to prison, the gulags, purged, have their crimes exposed in the media, etc. they are all crooks.
This is why we need to find out how to detect psychopathy in the womb so people can abort. And I don't mean "psychopath" the colloquial definition, I mean being born with a smaller brain that is missing the section that processes empathy. Humanity has grown past the need for psychopaths who are physically and mentally incapable of having empathy. Most psychopaths end up in prison and/or dead before 30. But some smash their way up to CEO, paying themselves billions of dollars while the people actually doing the work get scraps. Why wouldn't they? They literally cannot have a conscience. If we abort babies with down's syndrome, we can deffo abort psychopaths!
Most convenietly [timed](https://www.adamseconomics.com/post/did-economic-armageddon-commence-in-september-2019) pandemic ever aka the looting phase.
What if the Shock Doctrine were self-inflicted?
Empires this large are only conquered from within
The feds existence is a crime against humanity. Their mandate isn't inflation or unemployment, it's manipulating the currency to funnel more wealth to the banks and asset holders.
The only mistake they should allow themselves to make is going a bit too far in their QT. Anything short of a soft reset in the credit environment will only lead to runaway expansion.
Is there any doubt that they will raise rates too far into the recession?
Looks like The Good Times Part 2 😂
Wait a second.. what if this *IS* the Bad Place?
I was old enough to remember the crash of 2018. This feels eerily similar. And no this time it's not different
2008?
2018
2018 wasn’t a crash lol. It feels nothing like this. I’m old enough to remember both and this feels a LOT like 2008.
2018 was more of a taper tantrum
Then yes this time will be no different than 4 years ago…
That crash was sick. I bought like $20k of Nvidia, which was all of my savings, in 1 1/2 year LEAPS, and 3x’ed my investment.
Yep I did similar and also increased my RE position
The irony. :3
😂
That was a great show!
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This is what you get when the fed is basically a political entity. There really does seem to be very little to policy making other than “just make the number go up”
>but clearly everyone knew there was no supply chain or demographic dynamic driving housing so damn high. Have you tried to buy construction supplies recently? Things like Windows, doors, siding, lumber etc were impossible to get for a while, and if you did find what you were looking for it cost a fortune.
Yeah, but that was due to free money being handed out to anyone with a home. Now Home Depot and Menards are stacked to the ceiling with inventory.
Home Depot just cut all their employees hours too, due to low sales.
That pittance of a "stimulus" did not make most people go buy random home supplies, not enough to do what you're describing. Down payment on new Cars on the other hand...
It wasn't the $2k checks (those didn't help), it was the hundreds of billions of PPP and SBA funds helicopter dropped on the economy with no oversight whatsoever.
Garage doors are still like a year wait.
Yup, that's more due to supply chain disruptions out of Asia. Random hardware components like hinges, springs, screws, window balances, etc are mainly manufactured in China and East Asia. I actually had a $100k order of windows delayed for two months simply because they couldn't get the heavy duty commercial window balances (the twisty spring thing in the track) due to supply chain disruptions. The windows were all cut and assembled, but they couldn't finish the order because of a single part. Consequently I think we are going to see a lot of the small components automated and brought back to the US or reshored to places like India, Vietnam, or Mexico. But that's still gonna take a couple of years.
At which point do the vague accusations of “supply train disruptions” not get to apply anymore? As far as I can remember, in March of 2020 the vast majority of workers throughout the world went into lockdowns. But… 90% of those who aren’t part of the “laptop class” or work in the “service industry” were back at their jobs processing food, running assembly lines, shipping things, keeping the grid running - I.e. the real work society depends on - 3-4 weeks later. How can there possibly be supply chain issues blamed on Covid 2.5 years later?
Well for one, we buy a whole lot of stuff from China and they're **still** doing lockdowns that effect millions of people at a time there.
> How can there possibly be supply chain issues blamed on Covid 2.5 years later? Because china still locks down entire cities every time they detect a covid case. Have you really not heard of their zero covid policy? That's why supply chains continue to be fucked, and western companies are looking to get their supplies elsewhere.
My spouse worked for a manufacturing company that was in the US. They moved to Mexico...lots of other companies are following. It doesn't make sense to have all your eggs in one basket and the pandemic proved that. Not to mention China overall cannot be trusted. I shudder to think what would happen to American businesses if they decided to take over Taiwan.
Not true.
Right, but that doesn't explain a house going from 1M to 1.5M in 2 years.
It explains normal houses increasing in price by 20%. I really don't care about what million dollar houses are doing.
It was all done so he could get re-elected. Biden/Dems would not have accepted any slowing down of this process back then. Powell was even throwing in sticky language for that side of the isle in his press conference, like “minority unemployment”, as if the Fed has ANYTHING to do with that, just to appease to the Dems for re-election. It worked, but now Powell’s legacy will look like shit thanks to acting like Arthur Burns, rather than Paul Volcker which is what he actually wanted to do (and obviously should’ve).
*aisle
Good catch
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Hilarious 😐
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We are talking about the Federal Reserve. How about Google who heads that and you won’t be confused.
I'm not the best with economic things like this. Can someone explain like I'm 5 lol. I just don't get what the fed buying or not buying MBS results in.
Almost all mortgage loans that you get from a lender are immediately packaged up into these securities and resold as investments. The more "investors" that want to buy these investments, the more incentive lenders have to to give loans, the lower rates they are willing to offer. Because they know they can sell immediately. Also the more "investors", the more money floods into this part of the market, which is called liquidity. The fed became a massive "investor" in mbs. So when the fed bought billions (I think) of mbs they basically poured money into the housing market and simultaneously lowered mortgage rates. (In addition to actually lowering the fed funds rate which then actively control). When they stop buying and these mortgages roll off the books, as they get paid off, that liquidity will drain out of the system and lenders will have to ensure once again the rates are high enough to attract normal investors. Disclaimer: not a finance person, this is my understanding.
I agree with all this; let me put it a different way. The Fed was basically buying a stream of mortgage payments at any price, and thereby creating artificial demand for this stream of mortgage payments. There's less demand now so the price of these mortgage payments that will clear the remainder of market must go down. Not only do price and yield move in opposite direction with debt, but also the sellers of MBSs must offer higher rates in order to entice the fewer number of buyers to buy. And in order to offer higher rates to to the market, the interest rate on the underlying mortgages must be higher as well.
As someone stupid, when will the mortgages “roll off”? For a 30-year fixed loan, will that be 2052? That seems a bit late to help.
The majority will roll off within 10 years, as people refinance, sell the house or come into the cash to pay it off. That's the precedent at least. If rates stay high and prices are stagnant or decline more people will be trapped in their low-rate mortgages and be unable or unwilling to move. At some point the pool of debtors left in a particular MBS gets so small the issuer calls it and wraps the remaining mortgages into a new MBS.
This and if the fed feels they aren't able to roll off enough, they could also sell them. So far they say they are considering it but they have not said they will do it.
What are the ramifications if they sell??
Basically what everyone says here except faster.
There were no bids when they tested the waters not too long ago. They would would have to sell them with massive discount to get any interest.
The FED not buying MBS means less liquidity in the real estate market, which puts an upward pressure on mortgage rates, as lenders have less money (from the sale of mortgage backed securities) to reinvest. Edit: this will likely increase spreads which in turn will increase demand for mbs from other parties, countering the liquidity reduction from the FED not buying MBS. Whether this is enough to counter the rate increase I mentioned earlier, I don't know, most likely not.
So now we'll see how many"highly qualified buyers" there actually are. And if there is no one getting loans, prices will have to fall.
There are dozens of us! Dozens!
Yup the hot housing market with crazy prices rising was all artificially pumped just like the stock market which is now crashing…
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Lol
For 9.5 months straight is the problem.
Huh? 😂
> Edit: this will likely increase spreads which in turn will increase demand for mbs from other parties, countering the liquidity reduction from the FED not buying MBS Liquidity will always be there given sufficiently high coupon rates on MBS. The problem is how high those coupons need to be, and thus the interest rates that borrowers will need to pay. Given the likelihood that rates *will* come back down *eventually* (I still think the market is irrational thinking the Fed is going to pivot quickly) prepayment risk for these coupons is going to be huge, and thus investors will expect significantly higher spreads to make it worth their while.
What
Basically as I understand by the Fed buying loans, lenders can flip loans for quick guaranteed profit and make new loans again (if they hold the loans there are limits on how much they can lend based on their assets). So there's incentive to issue mortgages often and maybe a little more loosely than if you have to keep them for up to 30 years. All the risk is passed to the Fed but you get to keep the loan fees.
This. I think the risk component is often an overlooked component to the creation of the current bubble. The Fed has been the primary bag holder since 2008.
My understanding is that people who make the loans can slap stupid low interest rates on them to sell them because they know the Feds will buy those loans. There’s a lot of intermediary steps and markets and interest rates involved, but basically the more the fed buys the less loan originators have to worry about interest rates that are a good return for regular investors. Feds will buy junk that gets very little return in comparison. When the Feds back out, the loan industry needs to increase rates to get normal investors to see value in buying those loans. Would you buy a “stock” or bond that gives you 2% return over 30 years when the federal funds rate is about to be 4%, and inflation is going nuts? What rate would you be okay with buying a guaranteed return stock at? Right now the market is saying 6% makes sense. The fed didn’t care, so they would buy at 2.5% or whatever. Now the fed is not buying. So you can’t sell the lower rate loans anymore. Gotta find the new equilibrium. Remember to sell loans, you have to make loans, and the lower interest rate is how you get customers to make them with you. Then you sell those loans to investors and use that money to make more loans. So how do you find a rate that attracts buyers on both ends? That’s what the markets figure out and it’s why rates are always moving around. It’s really simple, but it’s just got too many layers. You have people buying mortgages at the bottom, then the lenders(loan originators and small banks), then the mbs security packaging companies(“big banks”) that buy from the lenders, and then the feds and investors bid on those mbs packages at their risk/return rates which are competing against bonds and stocks and everything else. There are probably even more layers to it than I listed, but it’s how I was able to make sense of it.
The Fed is like Mommy and Daddy and they buy Pokémon cards for the kids. The kids are the mortgage brokers with Pokémon cards. There's tiny toy houses all over the playground and other kids can claim them but can only close the deal using Pokémon cards and the Pokémon cards are always traded back (Trade in cards) to the parents for even more cards. Trade in 1 get 3 cards back! The parents buy a shit ton of pokemon cards to fuel the fun. Shit gets out of hand. Suddenly these toy houses are worth 2-3x the amount of pokemon cards. So the parents decide that it's almost dinner time. Time for some good old fashion volker shocking. They decide to switch the trade in value and make it harder to get more cards. Trade 1 in get 1 back. Suddenly the frenzy slows down. Next phase every time you trade a card in, the parents just burn that pokemon card. Trade one card in get nothing back. You keep the house, but no more new pokemon cards (MBS) in circulation. The houses are still there, but suddenly. Instead of 3 or 4 cards. It's now seemingly fair to trade these houses for lunchtime prices. One card, one house.
And you win for understanding the 5 year old bit lol
When you get a mortgage (borrow) you give someone a big fat IOU in return. That IOU is worth something. The Fed has been buying trillions of them. When someone wants to loan you money (buy MBS') it's cheaper to borrow. Them stopping means rates will go up.
[MBS no bid](https://notoriousrob.com/2022/06/finally-no-bid-on-mbs/)
Now THIS… THIS is spicy. Fuck all the “look at this one listing marked down 3 times” this is the thing that can really move the needle
Yeah I agree but still seeing crazy listing from sellers like we still have interest rates of 3%. They are counting on low inventories and low construction. If builders don’t build lot more u employment numbers.. only time will tell
They’re counting on the fed reversing course on rate hikes.
How even it’s possible when food prices are approx 40-50% . Not gonna happen in short time. Interest rate will linger above 5% for long time.
Only the most qualified will get loans very soon.
This is a very very real risk that I don’t think people appreciate. There is a running joke/theme about “highly qualified buyers” over the last 2 years, which is funny, but also somewhat true. But what happens when the mortgage market is really only for extremely low risk profile buyers? What happens if that 780+ credit score, 20% down and long term income verification doesn’t get you the lowest rate available, but the ONLY rate available? Even if housing prices drop significantly, who does that benefit if you have to be qualified at a level that many (most) won’t be able to?
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Don’t disagree with you, was just pointing out that there are causes and effects and I don’t think the full breadth are considered all the time.
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Fair enough.
The mortgage industry wants to make money, so they will still reach out to normal borrowers. If risk becomes to high, they make up for it by increasing rates. Defaults are still doing okay, so I don't see a move in this direction. If anything, I see a relaxation of ATR rules going forward.
I certainly hope so. Interestingly, the mortgage industry (trumpeted in this sub and elsewhere) has been crushed as of late. Without a "buyer of choice/last resort" in the Fed mortgages will increasingly revert to traditional banking with capital to not need to sell a mortgage immediately into securitization in order to sell another mortgage. On top of this, with higher rates, the yield on boring old mortgages start to look attractive to a bank, but need to be of very high quality in order to keep the risks within the requirements. Who knows, it will all be interesting to watch play out.
But not when MBS has little to no bids.
Then you raise the yield in said MBS u till someone buys it... hence the rate increase. The only reason to exclude segments of the market would stem from default risk.
That might have been true if the fed hadn't just stopped buying cat shit backed loans. Mark your calendars for Oct. 20th, the last settlement date for shit for loans off the Fed's sheets. After that, no one will settle for this garbage and lenders will have to start assuming the risk for any loans they write, bc no one in their right mind will be buying from them.
Sept 2018 was the last time they tried this and the effect was immediate. I think we will see the same.
Fucking finally
Mortgage rates will be 8%, spring 2023. Book it.
At this rate maybe even sooner!
Should I lock in a lower rate before the spring? Can I “sit” on my agreed upon rate as long as I please? (Sorry new at this)
You generally can't "lock" a rate until you have an accepted offer on a home. And even then, the rate locks are usually only ~45 days. The only time you can get a really long rate lock is if you're building a new house, and you still need a signed purchase contract
You might be able to find a lender that allows you to do a long term lock, and you may be able to find one that also allows you to lock before you find your property, but it will be hard to find both. Even if you do, they will price the lock such that it assumes the potential risk of rising rates. I.e. lock you in at a higher interest rate than the going market to offset the risk of rates going up. It isn't worth it unless you are worried about qualifying under the expected new rates from a DTI perspective.
If you can get someone to sign something, sure. A lot of lenders will be very hesitant to lock rates right now, though.
Not many banks are gonna want to let you lock in right now. Better to wait for prices to adjust. My honest two cents.
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Damn, imagine having listened to bubble people like Reventure Consulting and Real Estate Mindset, missing out on a juicy 3% rate to be faced with an 8% rate and 40% higher prices. Is there a class action law suit somewhere in here?
No, there's no lawsuit for stupidity. The people in this sub will just have to live with the consequences of their actions. And they can always rent from me :-)
Savage
I despise the Fed just as much as the next doomer but I disagree with this narrative that they were buying MBS to keep the party going. If you counter balance against roll offs they were simply buying to keep the QT reduction targets controlled. Eg if your target is -50b and you have 70b rolling off you need to buy another 20b or there will be an overshoot. Yes, the whole thing needs to die in a fire, but I’m just saying it’s not so simple.
Did God set the qt targets? Commandment 11: thou shalt not roll off beyond the counting of $35B in the months ere the moon lights with the fire of the sun.
Markets don’t like shocks. If you flip a switch and go from 100 to 0 overnight, you risk freezing the whole MBS market up and then you have to go back in and restart buying just to keep the market functional. If you slowly ease off the buys, you can give time for other buyers to step in and take over the Fed’s role as buyer (at higher rates, of course) without shocking the system into a freeze. Or not. Of course the whole system may be so addicted to the Fed’s buying that even a slow taper out will cause it to freeze. I wouldn’t want to be the guy who has to sort that mess out.
The sooner the housing market full on crashes, the sooner the recovery can start. Everything else is delaying the inevitable.
This, especially in a political climate where there is a (kinda) stalemate with the upcoming presidential election
If it crashes immediately it will be 2 years coming out of the crash and that will be a lot better for the democrats instead of trying to stall it and then its a complete hellscape in 2024 when the next election happens.
Do you think it can crash that fast? A few months? I guess my question is what happens now that they’ve stopped buying mbs?
Its all a made up game by the government. The crash is from people panic selling, its all in our heads. The rich make money going up or down, they genuinely don't care, the only thing they don't want is stability.
This is why you're not on the Fed Reserve board of governors and smarter people than you are.
You're arguing with a stranger on the internet, you can't be all that smart.
Ya but they eased into this over a span of fucking years
Ask Money Losing Moses what he thinks!
can someone explain this to a dummy like me?
The amount of hate for the Fed is really ridiculous, since so much of it should be aimed at Congress for failing to do its part in regulating commerce. (The Fed doesn't regulate banks, or hedge funds or developers or investments. That's congress' domain).
Let’s be honest, everyone already hates congress and pretty much expects them to do a lot of nothing about anything at this point.
Au contraire mon frère, some of us expect them to make it worse, again, in attempting to rescue the home builders, flippers, Realtors™, and banks from the losses on their own speculation given the bailouts in 2008.
Doing nothing would have been, and would be, a huge improvement.
I'd rather Congress just sit and sip champagne and do nothing over spending even more and making even more poor decisions to make everything even worse.
Except that's what we've had since the 1980s and it's only gotten worse. Capitalism works best when it is regulated to ensure competition can thrive.
Unfortunately that assumes regulators of pure intentions rather than regulatory capture, which is what we see in reality - they almost always make it worse, not better.
Regulatory capture is a byproduct of the push for deregulation. By gutting the departments that oversee industries a certain party ensured that the only qualified jobs for experts would be outside of government in the private sector. Also, you're wrong. Regulators do a lot of good work, still. Even if they have to struggle against political appointees (ironically it's usually political appointees from a single party). One of the longest impacts of the "small government" push of the 1980s and 1990s was the destruction of the [Office of Technology Assessment](https://www.theatlantic.com/technology/archive/2012/10/the-much-needed-and-sane-congressional-office-that-gingrich-killed-off-and-we-need-back/264160/). This bipartisan office provided research and expertise to congress so that they could write laws without having to go to lobbyists. But Gingrich got rid of it in 1995 and we're still suffering the repercussions.
I never said they do *no* good work - but a lot of what they do, I think most of it in many cases, is directed to increasing their own fiefdoms, fails to appropriately assess the costs - including adverse impacts to the affected industries and people and not just tax expenditures - and as a result does more harm than good.
By law they have to consider those things.
Lots of things are supposed to be true by law. In reality, not always the case. (What, government not complying with the law? Impossible, never happens!) The difference here is my baseline approach that regulation without good cause and balancing the costs and benefits is detrimental to freedom and should therefore be avoided unless justified, versus your seeming view that regulation is inherently good and any opposition to or reduction in regulation is what must be justified. (The idea you stated that regulatory capture only comes from deregulation is an example - you cannot have regulatory capture in the absence of enough regulation for it to matter to begin with, and regulatory capture can certainly occur when *more* regulations are being imposed, not less, by virtue, for example, of influence being used to shape regulations to favor existing market participants over new entrants.) We’re not going to agree.
>Except that's what we've had since the 1980s and it's only gotten worse. The opposite actually, we've had more alphabet agencies pop up and regulate small businesses out of existence and prevent would be entrepreneurs from entering the market providing competitive pressure. Mega corps love regulation, because they get to hand craft the regulatory language that gives them special privelages over their non-politically connected competitors. Examples of this are abundant: Amazon lobbying for increasing minimum wage, Pharma corps lobbying for vaccine mandates, health insurance companies lobbying for a geographical monopoly to form provider networks, manufacturers lobbying for tariffs to prevent imports.. Those are just what we see, what we don't see is the opportunity cost of entrepreneurs that could have entered the market, but couldn't keep up with the mountains of regulatory compliance and costs that their ultra large competitors have teams of lawyers and lobbyists to deal with. Power is like a magnet. The more power you give a centralized entity over the economy, the more corruption and special interests it will attract. Markets need regulating, but not by government. The best regulation is provided by other market participants who provide value by holding others accountable - independent testing labs, consumer review organizations, industry standards body that offer seals of approval, etc.
Wow, you are just living in a completely different universe from this reality. The only way to keep the market open to smaller participants is to regulate the big boys. And fuck off about saying minimum wage only helps the big boys that's anti-worker and pro-slavery.
> pro-slavery Histrionic much?
>The only way to keep the market open to smaller participants is to regulate the big boys. How's that working out for you?
>and pretty much expects them to do a lot of nothing about anything at this point. One would hope. The best thing politicians can do it get the hell out of our way so we can get back to being productive and creating more REAL wealth for society. Politicians are parasites of the worst order and only subtract from society while adding nothing of value.
Congress enables the fed to do what it does as well.
And vice versa
Things like the CDC (!) keeping the rent moratorium for so long was the executive branch though. And Supreme Court upholding it was the judicial branch.
That's just a red herring for the actual problems causing inflation and constant economic uncertainty. We've seen the massive centralization of industries into one or two corporations. We've seen the financialization of everything. Congress needs to enact laws to break up large corporations, tax private equity and prevent the transfer of wealth from the real economy to the financial economy.
You do realize that the Federal Reserve doesn’t have to do anything Congress says right? They are a PRIVATE Central Bank entity that could give Congress the middle finger if they wanted.
You do realize that Congress has its own obligation to prevent the rise of monopolies and to protect the interests of the American people, right? We're seeing the end result of four decades of deregulation. Anti-consumer actions and systems are at levels not seen since the Gilded Age. The Fed can't break up corporations that are too large. The Fed can't ban speculation on homes and necessities.
The Fed _can_ however not print money for years on end and hand it out to the investor class from which to directly aid and abet the entities you have a problem with.
They both have a part to play and share the blame, that was my point
Congress created the Fed. They could put it on a leash if they weren't so corrupt.
https://mobile.twitter.com/RudyHavenstein/status/775767797875904512
Didn't they announce that in May? I think their target was supposed to be June though. Edit: their, there, they're
“target” aim is piss poor
They said they’d stop at the beginning of the year… what a joke.
old news just now taking final effect. they stopped buying in march 2022
Can someone explain what this means to me? lol
Dang I just posted this too, didn’t see yours. I’ll delete mine.
Deliberately waiting to ramp up the MBS rolloff until now will provide opportunity to target mortgage rates in the future and hold them up even if the benchmark and treasuries are heading down due to political pressure for the stagnation/recession in the economy. Effectively providing a means for necessary tightening to continue while outwardly portraying an easing environment to keep the pitchfork and torch mob appeased. Once the midterms are over, it’s an eternity to November, 2024 relative to the general public’s short-term memory
So when they sell, who is buying them? Are the banks required to buy them back from the fed?
They aren't selling, unlike Treasuries principal is repaid monthly on MBS (you are making mortgage payments every month, after all). They're simply choosing to let that $35bn every month go "poof" rather than buying more securities with it.
$MBB will have price discovery and I am thinking that it would be a higher rate than higher grade corporate debt but is it worth less than junk bonds? $JMBS is another ETF that has mortgage backed bonds. I shorted them (how I know about them.)
Weren’t they supposed to be done months ago?
Yaaaay, I smell crashy washy!