Secondary mortgage market still ticking for now

Idaho banks continue to sell mortgages into the secondary market, even though it has been a rough year for government-sponsored mortgage buyers Fannie Mae and Freddie Mac in light of the subprime mortgage crunch, several bank presidents told me. Secondary-market players still want to buy mortgages issued to strong borrowers who made traditional down payments, but are steering clear of creative and risky loans, they said.

  Community banks sell most of their mortgages to secondary-market buyers, who package them into bonds and sell them to investors. As giants in the secondary mortgage market, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. - Fannie Mae and Freddie Mac, respectively – are an important sources of liquidity for community banks and other lenders. If these and other secondary market players in the mortgage market fail, it’s bad news for banks.

  The community bank presidents told me that a recently announced plan by the U.S. Treasury and Federal Reserve to shore up Fannie Mae and Freddie Mac – whose stocks have tanked in the past year - is mainly a matter of reassuring the markets in the short term and contributing to the health of Fannie and Freddie in the long term. On the heels of the Treasury-Fed announcement, the presidents of Fannie Mae and Freddie Mac issued statements saying the companies have adequate liquidity.

  Who knows how all of this will shake out, but it seems as if housing and finance markets at least want to return to some kind of “normal” state that reflects solid fundamentals.