The US government has gone from being the biggest player in the mortgage market to being just about the only player. Per recent reports sent by an alert reader, Freddie Mac and Fannie Mae now finance 80% of all mortgages, and the FHA guarnatees another 10%, so these entities now come close to having mortgage finance all to themselves.

Having Fannie and Freddie, be this large, as we mentioned before, is disruptive to the credit markets. The GSE hedging of their derivatives book is pro-cyclical, increasing the amplitude of bond market price moves. Indeed, the Fed was worried that the scale of these operations in 2001, seeing possible systemic risk, but the restrictions imposes as a result of accounting scandals took care of that problem for a while.

First, on Fannie and Freddie, from Associated Press:

Freddie Mac and its fellow GSE Fannie Mae are now financing more than 80 percent of all mortgages in the U.S., up from 40 percent a year ago. As lenders rely on Freddie Mac to buy their loans, the company is charging higher prices and increasing market share. Freddie Mac, which has a $738 billion portfolio of mortgage bonds and guarantees $1.78 trillion in home loans, is raising prices next month for the fourth time. “We are nearly the only game in town, and we think we are going to be able to enjoy that position for a number of years,” Piszel said.

On the FHA, from the Washington Post: