The secondary mortgage market is the life blood of the massive housing industry. If it catches any kind of ailment, the consequences can be rather dire. A serious virus invaded it not so long ago - it can also be called the great escape of the private investor - and threatened to bring the besieged real estate market to its knees. Or worse.
The Fed had to step in to fill the void and started buying Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities, or MBS, to maintain liquidity. To give the housing industry a chance to work itself out of this mind-boggling jam. The Fed had plans to do this through the end of this year, having determined that that's when things ought to be improved enough to draw the private investor back in. That hasn't happened, though, in the numbers they had expected.
The Fed has just this week extended its mortgage paper buying program until March of 2010. It really had no choice. With that, the home loan sector can breath a little easier at least for the time being. And the overall economy is in a better position to climb out of the gutter one of these days. The current plan calls for a gradual slowing down of the purchase process to make the eventual transition smooth, signaling that it is dead serious about exiting the scene in March.
The private mortgage investor needs to see that the housing segment is indeed worth putting money into, where it can expect a decent return. Otherwise it'll look elsewhere. Right now it just might be a bit of wishful thinking that things will pick up sufficiently by March. True, there are a few indicators that point toward a slow turnaround.
Las Vegas valley - including Henderson, Summerlin, Anthem, Green Valley Ranch, Sunrise Manor and Boulder City - for instance is seeing reasonable sales action in the lower third of the market, offering some optimism. On the other hand, high unemployment is a burden for months to come, as are the future mortgage foreclosure projections. And this appears to be the outlook in many other areas of the country as well.
It could well be that the Fed has to do another extension. The best would of course be that the Fed's calculations work out. But plan B is always good to have handy.