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IANAE(conomist), but my naive interpretation is this: let’s say the pandemic causes 25% of mortgage holders to become delinquent, a number I don’t think is unre

IANAE(conomist), but my naive interpretation is this: let’s say the pandemic causes 25% of mortgage holders to become delinquent, a number I don’t think is unreasonable. If the Fed owns a third of all mortgages (and their ownership is a normal distribution of all mortgages, I have no idea if this is true), that’s 25% of $2T that is suddenly at risk. If the total Fed balance sheet is $7T, that’s 7% of their total assets that could disappear. That seems like a lot to me.

renewiltord 6y ago
Yeah but the Fed can just make 7.5% more money and we're back at even and it won't even be bad because they're trying to increase inflation not decrease it.
- gaukes 6y ago
  The money they’re printing isn’t being circulated because people are keeping it in their bank accounts and reducing spending. I think we’re in for something when things return to normal.
  - core-questions 6y ago
    If everyone starts spending, doesn't that increase demand, and therefore push the economy into high gear? Doesn't everyone want more business?
  - athms 6y ago
    Money in bank accounts is being circulated through loans. Examples of money out of circulation are coins in a jar, rolls of twenties under the mattress, or bags of cash next to the remains of D.B. Cooper.
boulos 6y ago
Actually, your 25% delinquency rate seems unreasonable. During the financial crisis, the subprime delinquency rate peaked at 26% [1] but the overall (whole US market) rate was just over 9%. Delinquency is also mostly just about being a leading predictor of foreclosure or some sort of renegotiated payment structure. The same stat suggests that foreclosures overall peaked at just over 2% (but up to 15% subprime) [1 again, but also 2 which is more clear on 2.23%]. So I’d assume something closer to 2-5% foreclosure, depending on your estimates of benefits policy. Even in foreclosure, there’s still recovery (financially). In fact, Goldman Sachs might even make a profit re-selling the mortgages it bought off of Fannie / Freddie as part of its $1.8B court-mandated “consumer relief” program [3]. It’s unlikely the Fed would be as “good” at this as Goldman, but a likely unwinding strategy would be to sell them to similar investor groups. Either way, not going to $0 :). [1] https://www.statista.com/statistics/205959/us-mortage-delinquency-rates-since-1990/ https://www.statista.com/statistics/205959/us-mortage-delinq... [2] https://www.google.com/amp/s/www.statista.com/chart/amp/15466/state-of-foreclosure-after-great-recession/ https://www.google.com/amp/s/www.statista.com/chart/amp/1546... [3] https://www.google.com/amp/s/www.bloomberg.com/amp/opinion/articles/2020-05-26/goldman-was-just-trying-to-help https://www.google.com/amp/s/www.bloomberg.com/amp/opinion/a...
- throwawayhacka 6y ago
  actually, for many metro areas the delinquency rate is reaching 25%+ for FHA loans right now. they're surviving due to the feds preventing foreclosure. things are a little better in the other classes of loans but not much! if the economy stays weak and jobs dont come back, some metros may well see a housing price decline. Atlanta, Houston and san anton.
  - boulos 6y ago
    Sure, but the parent comment was saying they're worried the Fed will lose all the money. But the Fed is buying things broadly (initially they bought Bond ETFs/funds!), so while some places will be higher, others will be lower. My guess is that even more than during the financial crisis, people are delinquent but would absolutely pay if they could. Was your housing price decline statement supposed to be about those homes becoming underwater and therefore the buyers walk away / end up in foreclosure?

renewiltord 6y ago

Yeah but the Fed can just make 7.5% more money and we're back at even and it won't even be bad because they're trying to increase inflation not decrease it.

gaukes 6y ago
The money they’re printing isn’t being circulated because people are keeping it in their bank accounts and reducing spending. I think we’re in for something when things return to normal.
- core-questions 6y ago
  If everyone starts spending, doesn't that increase demand, and therefore push the economy into high gear? Doesn't everyone want more business?
- athms 6y ago
  Money in bank accounts is being circulated through loans. Examples of money out of circulation are coins in a jar, rolls of twenties under the mattress, or bags of cash next to the remains of D.B. Cooper.

boulos 6y ago

Actually, your 25% delinquency rate seems unreasonable. During the financial crisis, the subprime delinquency rate peaked at 26% [1] but the overall (whole US market) rate was just over 9%. Delinquency is also mostly just about being a leading predictor of foreclosure or some sort of renegotiated payment structure. The same stat suggests that foreclosures overall peaked at just over 2% (but up to 15% subprime) [1 again, but also 2 which is more clear on 2.23%]. So I’d assume something closer to 2-5% foreclosure, depending on your estimates of benefits policy. Even in foreclosure, there’s still recovery (financially). In fact, Goldman Sachs might even make a profit re-selling the mortgages it bought off of Fannie / Freddie as part of its $1.8B court-mandated “consumer relief” program [3]. It’s unlikely the Fed would be as “good” at this as Goldman, but a likely unwinding strategy would be to sell them to similar investor groups. Either way, not going to $0 :). [1] https://www.statista.com/statistics/205959/us-mortage-delinquency-rates-since-1990/ https://www.statista.com/statistics/205959/us-mortage-delinq... [2] https://www.google.com/amp/s/www.statista.com/chart/amp/15466/state-of-foreclosure-after-great-recession/ https://www.google.com/amp/s/www.statista.com/chart/amp/1546... [3] https://www.google.com/amp/s/www.bloomberg.com/amp/opinion/articles/2020-05-26/goldman-was-just-trying-to-help https://www.google.com/amp/s/www.bloomberg.com/amp/opinion/a...

throwawayhacka 6y ago
actually, for many metro areas the delinquency rate is reaching 25%+ for FHA loans right now. they're surviving due to the feds preventing foreclosure. things are a little better in the other classes of loans but not much! if the economy stays weak and jobs dont come back, some metros may well see a housing price decline. Atlanta, Houston and san anton.
- boulos 6y ago
  Sure, but the parent comment was saying they're worried the Fed will lose all the money. But the Fed is buying things broadly (initially they bought Bond ETFs/funds!), so while some places will be higher, others will be lower. My guess is that even more than during the financial crisis, people are delinquent but would absolutely pay if they could. Was your housing price decline statement supposed to be about those homes becoming underwater and therefore the buyers walk away / end up in foreclosure?