I don't follow. Jumbo loans exist now even without support from F&F, why can't smaller loans exist without F&F? F&F are not some charities, they make profit on their mortgage business. If they did not exist what would have prevented another firm taking over the same business (securitizing mortgages)? I mean, there are plenty non-conforming loans, which are not jumbo, written right now. It's just hard to compete with the F&F on the conforming loan market so nobody does that otherwise there is nothing magical about conforming loans.
> If they did not exist what would have prevented another firm taking over the same business (securitizing mortgages)?
It doesn’t work without the implicit guarantee. If you run a neutral pricing model, you’d get a rate roughly double where they’re priced now. The only solution is to let the rate periodically reset.
> Whatever model you run is most probably wrong because jumbo loans are not priced double and actually are priced pretty close to the conforming loans
Modelling non-jumbo loans provided without support. I have a jumbo mortgage. I also had substantial assets when I took it out, substantial income and opted to put 25% down. Remove those factors and your credit component starts interacting with duration in complex ways.
Remove that part of the market--the massive number of guaranteed, conforming mortgages--and the securitisation and hedging infrastructure that supports jumbo fixed 30-year loans falls apart [1].
It's great that you have substantial assets but neither that, nor the article "model" anything. Also you are now changing your argument from "remove F&F" to "remove securitization and hedging infrastructure". As I already pointed out, if F&F did not exist, another firm could have done exactly the same securitization, as many do on non-government controlled markets right now.
Fair enough, the 30-year mortgage wouldn't exist for the average American. I don't believe the Fed buys mortgage securities containing them either.