[quote=briansd1]I wonder why there is no secondary market. Is it because of government competition, or because there simply because that’s how the market works.
If only we’d like the market take care of itself, mortgages would be a lot more expensive and house prices would be a lot lower.[/quote]
Have you paid ANY attention for the past five years?
There was a huge secondary market – it was the majority of the market. Mortgages were bought, bundled, traunched, diced/sliced and turned into mortgage backed securities, aka derivitives. These were sold as investment vehicles. This profitable scheme demanded more and more mortgages, so underwriting was relaxed and anyone with a pulse could get a mortgage.
Then the shit collapsed because real estate does *not* always go up and people who never should have gotten a mortgage stopped paying on their notes.
The secondary market disappeared overnight. Because no one wanted to buy mortgage backed securities – because no one trusts the underwriting. And we’d learned that real estate is like any other market – it can go down as well as up. And when it gets to bubbly heights – it can collapse.
The GSE’s are the only folks willing to buy the mortgages… And they were pumped up to fill the demand to help ease the liquidity crisis. Some day the secondary market might come back… Perhaps banks will go back to holding the mortgages they underwrite… but I’m not holding my breath.
