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The Federal Reserve has on its balance sheet $1.3 trillion in mortgages on top of $2 trillion in long-term US Treasury bonds. What does this mean for the future of US housing and government finance? Jay Brinkmann of the Mortgage Bankers Association kicked off an AEI event addressing these topics by emphasizing the Federal Reserve's dominant role in the mortgage market, explaining that the Fed holds 25 percent of outstanding mortgage-backed securities.
Mark Fogarty of National Mortgage News stressed that the uncertainty created by the Fed has resulted in disappointing mortgage earnings at major banks and a reduction of jobs in the mortgage industry during the third quarter of 2013. AEI's Desmond Lachman turned the conversation to the European debt crisis, criticizing the complacency of European policymakers and market participants toward Europe's unsolved fundamental economic issues.
Chris Whalen of Carrington Holding Company argued that US investors' all-cash purchases of distressed properties have accounted for a significant portion of home sales, resulting in increased housing prices and masking the significant regulatory constraints on the availability of mortgage credit for the average American. Finally, John Makin of AEI recommended that the Federal Reserve should, under the leadership of its incoming chair, clarify that it cannot solve every problem, disconnect the policy of low interest rates and unemployment rates, and actively monitor for asset price bubbles.
The US housing bubble and financial crisis are over, but their effects live on. Average house prices have recovered and are about back to their long-term trend line, but the Federal Reserve has on its balance sheet a staggering $1.3 trillion in mortgages on top of $2 trillion in long-term US Treasury bonds. What happens when the Fed stops buying mortgages? How high will long-term interest rates go, and with what domestic and international results?
Fannie Mae and Freddie Mac are reporting profits, but remain wards of the state, and although Ben Bernanke was the chief financier of the crisis, the post–Bernanke world will begin on January 31, 2014. What then?
These and other relevant issues will be addressed by our expert panel.
If you are unable to attend, we welcome you to watch the event live on this page. Full video will be posted within 24 hours.
Jay Brinkmann, Mortgage Bankers Association
Mark Fogarty, National Mortgage News
Desmond Lachman, AEI
John H. Makin, AEI
Chris Whalen, Carrington Holding Company
Alex J. Pollock, AEI
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Jay Brinkmann is chief economist and senior vice president of research and education for the Mortgage Bankers Association (MBA). He joined MBA in 2001 as the head of its research group after having worked in the portfolio strategy group of Fannie Mae. He began his career as a Capitol Hill press secretary and served as the deputy chief of staff to the governor of Louisiana. He has worked in commercial banking and was on the business school faculty at the University of Houston, where he specialized in financial institution regulation.
Mark Fogarty is editorial director of SourceMedia’s Mortgage Group. He has covered the mortgage business since 1984, meaning he is on his fifth real-estate cycle. He directed the news team that won the George Polk Award for Financial Journalism and his editorials have won awards from the American Society of Business Press Editors and the Native American Journalists Association. Fogarty has also worked for the Jersey Journal in Jersey City, NJ, and the South Bergenite in Rutherford, NJ.
Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund's (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Lachman has written extensively on the global economic crisis, the US housing market bust, the US dollar, and the strains in the euro area. At AEI, Lachman focuses on the global macroeconomy, global currency issues, and multilateral lending agencies.
John H. Makin is a former consultant to the US Department of the Treasury, the Congressional Budget Office, and the International Monetary Fund. He specializes in international finance and financial markets (stock, bonds, and currencies including the euro and the US dollar). He also researches the US economy (including monetary policy and tax and budget issues), the Japanese economy, and European economies. He is the author of numerous books and articles on financial, monetary, and fiscal policy. Makin writes AEI's monthly Economic Outlook.
Alex J. Pollock joined AEI in 2004 after 35 years in banking. He was formerly president and CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004. He is also the author of numerous articles on financial systems and the organizer of the Living in the Post–Bubble World series of AEI conferences. In 2007, he developed a one-page mortgage form to help borrowers understand their mortgage obligations. At AEI, he focuses on financial policy issues including housing finance, government-sponsored enterprises, retirement finance, corporate governance, accounting standards, and the banking system. He is the lead director of CME Group, a director of Great Lakes Higher Education Corporation and the International Union for Housing Finance, and chairman of the board of the Great Books Foundation.
Christopher Whalen is executive vice president and managing director for Carrington Holding Company LLC. Carrington operates in virtually every aspect of single-family residential real-estate transactions — investments in US real estate and mortgage markets, loan origination and servicing, asset management and property preservation, real-estate sales and rental, and title and escrow services. Whalen is cofounder and vice chairman of the board of Lord, Whalen LLC, the Los Angeles-based provider of customized risk management tools and consulting services focused on the financial services industry. He is the author of the December 2010 book "Inflated: How Money and Debt Built the American Dream," now in a second printing from John Wiley & Sons. Whalen currently writes a twice weekly column called Washington & Wall Street on the Breitbart.com website. He also contributes articles to Zero Hedge, American Banker, and The National Interest. Whalen has testified before Congress, the Securities and Exchange Commission, and the Federal Deposit Insurance Corporation on a range of financial, economic, and political issues. He is a member of the Finance Department Advisory Council at the Villanova School of Business and an adviser to the Downeast Lakes Land Trust of Grand Lake Stream, Maine. Whalen is a fellow of the Networks Financial Institute at Indiana State University and a past regional director of Professional Risk Managers International Association. He is also a member of the Economic Advisory Committee of the Financial Industry Regulatory Authority and the National Association of Business Economists.