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| I learned recently Canada has no long term home mortgages.
In the US these home loans are primarily issued through banks that do not own them, but issue them conforming to a government agency or government sponsored enterprise standards. These loans are eligible to be securitized in an agency or GSE bond and traded on Wall Street as an agency / GSE bond. This means the purchaser of the bond is buying a bond guaranteed by a US government agency or government sponsored enterprise, even though the bond is nothing more than 1000s of individual home loans. It gets interest rates lower for borrowers. Farm Credit is the same thing.
The agencies or GSEs, specifically Fannie Mae, Freddie Mac, USDA RD, FHA under political pressure, let the underwriting standards become trash. Politicians thought they were helping. Meddling in credit is stupid and never helping. Student loans are another great example. Simply put, loans are not a right. It doesnt work that way because there is credit risk and the government should not be the bag holder of risk. Garbage home loans issued by banks (because they weren't actually taking the risk) which technically met the incompetent government agency standards led to the sub-prime crisis.
The derivatives created in addition to these bonds caught attention in the aftermath. Team blue blamed deregulation and try to pin the full fault on the derivatives. Well that is not all wrong, but team blue never accepted that their "everyone deserves a home loan" was the actual root.
Very unpopular that tax payer bailed the system out. Government never accepted fault. | |
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How money is created
