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Risky Mortgage Bonds Reach $1 Trillion
Bonds Insured by Feds


Bonds backed by "risky" single-family mortgages (low down payments/low credit scores) insured by the Federal Housing Administration (FHA) and guaranteed by the government (Ginnie Mae) reached $1 trillion for the first time in November, reports the Wall Street Journal, setting off some red flags. FHA is the largest mortgage insurer in the world.

The concern is that the vast majority (80%) of these mortgage lenders are not banks (e.g., Quicken Loans, Freedom Mortgage, et al.). Banks have pulled back from issuing FHA loans and packaging them into bonds sold to investors, fearing no doubt a repeat of the 2007-2009 financial crisis brought on to a large extent by all the subprime adjustable rate mortgages that were bundling into mortgage back securities (MBS) and sold globally. When the rates rose on the subprime borrowers, an avalanche of defaults ensued and exposed the MBS as nearly worthless, bringing on the failures of many banks and financial institutions.

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November 13, 2018, 8:53 am PST

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