The securitization of mortgages is of interest to me (I know, I’m a nerd), as it ultimately affects the individual taxpayer.  Basically, your loan originator funds your mortgage, then sells that mortgage to other entities (sometimes, dang it).  

Those entities then create bonds backed by the guarantee of the payment of your original loan (the process of securitizing loans).  Some of these entities (Ginnie Mae, Freddie Mac, or Fannie Mae) are backed by the US government, which is supported by my tax dollars.  And since these entities are losing their shirts right now, I’m a little worried about this market (as you should be).  Here is a techy write up on this subject, which I thought was interesting.

Some of these original loans are of pretty good quality (solid lenders dubbed “prime” lenders) and some are not (dubbed “subprime” lenders).  The difference is between good and bad credit ratings, or even loan applications that originally had poor documentation on the borrower’s income (called Alt-A loans).  When the entities backing these latter subprime loans are guaranteed by the US government, basically that means you and I back these instruments (although very indirectly).

And now that Fannie Mae is booking huge losses (see here, here and here), I start to get worried about how that will affect you and me.  Will taxes be raised?  The government is always trying to come to our rescue, so I’m worried they’ll be doing the same again.

Most everything in the economy gets back to me and you, and more specifically your tax bill.  This is just another example.

Any more examples of how specific issues in the economy or the news my affect you and me?

Thanks, Jason M. Blumer

 

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