The U.S. housing bubble, inclusive of the once-reproached Mortgage-Backed Securities (MBS) market, is once again being expanded. Along with a voluminous pouring in of large-scale amounts of liquidity by the U.S. Federal Reserve and the U.S. government budget, via three “stimulus acts,” home prices in America’s hottest real estate market cities have surged since the nadir year 2010. During the past 12 months, they have grown at double-digit rates.
The total volume of household mortgage debt rose to $11.04 trillion by the end of the first quarter of 2021, according to the Federal Reserve’s “Financial Accounts of the United States” table. As well, the volume of Mortgage-Backed Securities (MBS) is now $10.91 trillion. These are derivatives: bonds issued against home mortgages, in which the mortgage bonds are sliced and diced into different tranches and sold to investors. The total outstanding value of the homeowner mortgages and the MBS, which is separate but piled upon the mortgages, is $21.95 trillion, a record. The ultimate income of the MBS must come from the interest and principal mortgage payments that home-owners are able to pay, which becomes the ‘income stream’ for the MBS.
Should home-owners not be able to pay on their mortgages, the mortgages and the MBS simultaneously collapse.
