America Needs and Wants a Secondary Mortgage Market

By Kyle Chezum Updated on 4/4/2011

Mortgage rates are up to 4.85% this week, a Freddie Mac report showed,  This is still incredibly low when compared against the mortgage rates of yesteryear, but it's higher than the rate that was broadly available during many of the last six months.  Some economists have pointed to this trend of stabilizing rates as a sign of an imminent recovery.  Others have pointed to other figures, such as the fact that just 4% of single family mortgages are currently delinquent, to support this conclusion.

But the recovery won't truly begin until the secondary mortgage market has stabilized.  John Stumpf, president and CEO of Wells Fargo, claims that the financial health of Fannie and Freddie is critical to the next stage of recovery, as mortgage origination simply won't pick up again until banks are able to confidently move the loan off of their balance sheets and into the arms of investors such as the GSEs.

Stumpf claims that this isn't just what America needs.  It's what America wants.  If banks are required to hold their entire loan portfolios themselves, they'll ration what they can lend, which will make mortgage almost impossible to get.  Without a strong secondary market, Americans simply won't be able to get mortgages, and this means they won't be able to purchase homes.  As we have recently seen, the strength of America's homebuying population is critical to the strength of our economy overall.

The Wells Fargo CEO has called for more attention to the issues that are, at present, weakening the secondary market.  Once these are resolved, mortgage lending will increase again and more individuals and families will be able to purchase the homes they need and want.