Bond Expert: Death by Mortgage?

by: John Jansen posted on: August 06, 2008 | about stocks: FRE    

The English word mortgage shares a Latin root with words which deal with death such as mortal or mortify. The Latin root is mors which literally means death. Mortgage takes its meaning from the Old French word for “dead pledge”.

I mention this  because the mortgage market today is a near death experience. When I last checked a few minutes ago mortgages were about 18 ticks wider to Treasury paper and about ½ point wider to swaps. There has been significant selling by servicers originators, and speculators.

One dealer noted that when mortgage spreads took a clubbing last March as Bear Stearns was passing through death’s door,  the market received a stay of execution as foreign buyers emerged and as the regulators lifted some balance sheet constraints.

There will be no such deus ex machina this time. Indeed, the twin fears gripping mortgage market participants are that Freddie (FRE) will not only slow its portfolio growth but the exigencies of present circumstances might force Freddie to shed assets.

If that is the case, mortgage market participants might ask the question posed in the Bible, “Death, where is thy sting”?

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John Jansen

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This article has 2 comments:

  •  
    whidbey
    Aug 06 04:37 PM
    Yes, but it is not just the mortgage holders who suffer. It is the whole of the economy that is going down with them. The Congressional fix was to loose Hank and Ben on the holders of half the mortgages in existence. Just the transactions costs to use the new facilities will lessen the value of the housing stock another 20%. Some fix, more to go; do we want to know the outcome? So few understand the collapse of this market as a personal problem that will consume many of us and damage all.
  •  
    adan
    Aug 07 08:48 AM
    My Website
    vital point: "There will be no such deus ex machina this time." - thanks!
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