M
y comments: It had to move from the private players to the state. As technology makes more and more people obselete for employment it is getting riskier and riskier to make loans to individuals. The only way would be much higher interest rates charged to individuals to compensate for the risk. Which would cause a much larger fall than we've already seen in house prices.
The big banks already are getting out of the mortgage game in most industrial nations. The new game is all about big time corporate lending. While incomes of your average person are unstable and flimsly, a comany like Coca Cola you can lend billions to. If you look in detail at the big banks balance sheets, mortgages are a shrinking part of the total.
The other one banks are getting fed up with is consumer credit. Its a small and shrinking part of their books as well. I wouldn't be surprised to see the big banks practically get right out of consumer credit over the coming decades. Leave it to little fish at scam interest rates.
Otoh say its a big oil company looking at spending £5 billion pounds developing an oil field complex in Ghana. Then the banks are interested and the company has real collateral to back it up, and stability of income.
If you inspect the recent earnings disclosure from the largest US banks, what you find is that 99% or more of new residential loan originations are going into either FHA, Fannie Mae or Freddie Mac subsidized risk buckets. There is minimal private mortgage origination and private securitizations are non-existent, thus one wonders about the happy atmosphere at the Asset Securitization Forum Convention in Orlando. What's more, even though the overall mortgage loan market continues to shrink, the balance sheets of Fannie and Freddie are growing, especially loans held for the portfolio. In the case of Fannie, to over $400 billion at Q3 2010 vs. $250 billion at the end of 2009. The defaulted loans are held at cost, BTW.
Much of this increase in the size of Fannie's balance sheet is repurchased defaulted loans from securitization trusts, grim evidence of the generosity of Secretary Geithner in letting Bank of America ("BAC"/Q3 2010 Stress Rating: "C") off the hook for mere single digit billions in terms of loan repurchase liabilities. The taxpayer will have to pay the cost of this gift to BAC shareholders, with interest. But excluding this inflow of financial detrius, the balance sheets of the zombie GSEs would be shrinking on ebbing industry new loan origination volume. The run-off from existing RMBS portfolios is so brisk, we hear in the servicing channel, that a prolonged drop in new origination volumes could see the mortgage sector shrink dramatically in 2011 and 2012, this as loan repurchase volumes hopefully slow.
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