The Benefits of Securitized Mortgages

Pre-Fannie Mae mortgages stayed on the books of the banks who made them. Now mortgages are immediately sold to Fannie Mae and others who convert pieces of many mortgages—slicing and dicing—into securities which are sold by investment banks.

The genesis of this securitization and its actual money flow have not be adequately discussed. Did it cause the housing bubble (the irrational rise in house prices)?

Is it smart to base a nation's economic stability on the ability of its homeowners to pay their mortgages?

This has all the appearances of a con. An ignorant and careless public turned a blind eye—until they fell into the black hole of the resulting recession.

Some of the beneficiaries of securitized mortgages are the executives who "earned" multi-million dollar salaries and bonuses. Did that money represent material wealth—made the old-fashioned way—or was it a fabrication? If the former, what sense does it make to reward bankers at this scale for selling mortgages piecemeal to global investors? Where does the money came from to pay these "administrative" costs? It must be the sales profit, the increase in the actual value of the mortgages realized at the point of sale to the investors. This profit is what motivates bankers. What percentage was it of the original mortgage value?

Were these securities overpriced at the time of sale? What metrics exist to evaluate price-to-value ratio as exist for stocks? Was there any way to monitor their price-value performance? Or did the investors buy a "pg in a poke"?

We've heard about the role the credit rating agencies played in perpetuating this hoax. They failed their fiduciary responsibility and should be jailed. The CPAs have kept their heads down, but too are surely at fault.

All the details need to be made public. Then we the people can address the philosophical questions, punish the guilty, and establish a framework in which this will not continue.

Revision: 4-27-2009.