US Mortgage System Hangs By Asian Thread
The precarious debt situation grows more so by the day as the mortgage beast must be fed. "Freddie Mac, seeking foreign investment in its mortgage securities to build a capital base, is making a concerted effort to appeal to investors in Asia, an executive at a mortgage banking conference said."
"'From our standpoint and mission, our job is to go out and find more buyers for our securities. It's a wealth of opportunity right now' in Asia, he told Reuters late Monday. Roughly a third of agency debt is held by overseas investors. Analysts say foreign investors could hike their holdings of some asset-backed securities to two-thirds of the market."
The debate on this blog regarding the quality of mortgage data is answered here. "Federal Reserve data show constant and heavy demand for federal agency debt, which includes both mortgage and agency securities, but does not distinguish between the two types." So we "implicitly" guarantee the debt that Asia and the GSE's profit from. Who's responsible for this racket?
With the GSE's pulling back, the Asians will have to buy the subprime bonds, because, well, there are no other buyers. "Some analysts think accounts in the Asia-Pacific region are stepping up MBS purchases because of a dearth of new agency debt as Fannie Mae and Freddie Mac have cut agency securities borrowings as mortgage investment portfolios have shrunk."