´Zen International‘: Who will replace the Fed as a buyer for US mortgage agency debt?
“Zen International†analysts suggest that the US housing market is poised for a double dip now that the US Federal Reserve has confirmed the end of its quantitative easing program.
Under the program, the Fed purchased $1.25 trillion worth of mortgage-backed securities and agency debt in an effort to keep mortgage rates low and stimulate the property market and “Zen International†analysts fear that, with the biggest buyer exiting the market, mortgage rates may rise jeopardizing the recovery.
Responding to speculation that China would continue to soak up agency debt as it has done in the past, the ´Zen International‘ analyst said that the recent escalation of tensions between the Chinese and American governments over trade coupled with the widely publicized aim of the Chinese to diversify their reserves away from US treasuries and agency debt could result in a dearth of buyers.
Agency debt is the name given to the bonds issued by Freddie Mac and Fannie Mae, the nationalized US mortgage finance companies who, between them, guarantee or own half of all the mortgages in the United States. Shortage of buyers could force mortgage rates up at a time when the property market can ill afford to absorb them.
“Zen International†believes that many of the mortgages modified by lenders in order to keep homeowners in their properties are already delinquent and with the ending of government support for the market, there will be increased supply of stock from additional foreclosures which is certain to send the market into its next decline.