![]() ![]() ![]() ![]() The pooling of mortgages into MBS permits the separation of loan origination and funding, as well as the transfer of risk. The direct link between housing finance and the capital markets is through securitization of home loans in various types of mortgage-backed securities (MBS). housing finance system is the role played by the capital markets in funding residential mortgages (see Green and Wachter 2007). One of the distinguishing features of the U.S. It focuses on changes in the way loans were made and funded and how loan characteristics themselves changed. This Economic Letter summarizes some of the key ways that the mortgage market evolved during the boom years and during the ensuing housing market bust. But, with the onset of the financial crisis and the failure of many mortgage market participants, access to mortgage finance declined dramatically. House prices and net borrowing by households surged in the early part of the decade, easily outpacing growth in household income. The period following the 2001 recession through 2006 is rightly called a housing boom. At the same time, non-agency mortgage securitization and loans retained in lender portfolios have largely dried up. The government-sponsored enterprises-Fannie Mae, Freddie Mac, and Ginnie Mae-now own or guarantee an overwhelming share of originations. housing market has moved from boom in the middle of the decade to bust over the past two years, the sources of mortgage funding have changed dramatically. ![]()
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