Hey, Where are All Those Mortgages Going to Go?

Certain Luddites and ignoramuses in Congress believe we should go back to the ‘Good Old Days’ when our banks and thrifts held mortgages in portfolio. They don’t quite understand the whole concept of a mismatch between assets (mortgages) and liabilities (deposits.) Then again, maybe they know something we don’t know. But let’s just say that maybe it’s really not-so-risky to borrow short and lend long. But do our banks and thrifts (a consolidated bunch for sure) have the balance sheet capacity to hold residential loans on their books? Consider this fun fact: According to the Office of Thrift Supervision, S&Ls and savings banks sold 99.6% of their first quarter residential originations into the secondary market. Almost all of these were fixed-rate loans. This tells us that there is NO appetite whatsoever to hold 30-year FRMs on the books of depositories. Maybe, before being elected to Congress the candidates should take a financial literary test.