Commentary
The financial markets are fragile right now. And there’s no better illustration of this than the multiple layers of issues plaguing the U.S. mortgage market. To U.S. consumers, the mortgage interest rate is probably the most direct translation of the Federal Reserve’s interest-rate moves. More than 50 million Americans have a mortgage, and a significant portion of Americans’ net worth is tied to their primary homes. Let’s quickly walk through what happens when someone takes out a mortgage. A bank  or mortgage lender (such as Rocket Mortgage) originates the mortgage and earns a fee from the borrower. The lender sells the mortgage within 30 days of closing—which frees up the cash to make the next loan—to an entity that pools bundles of hundreds of mortgages and issues a mortgage-backed security (MBS). Depending on how the mortgage was underwritten, many MBSs are backed by federal government agencies such as Fannie Mae, Ginnie Mae, and Freddie Mac. Investors, including investment funds, pension funds, insurance companies, and foreign institutions, buy these MBS bonds. As the homeowner makes monthly principal and interest payments, a mortgage servicer ensures that the right parties (e.g., investors) receive their appropriate payments timely….