The Mortgage Bankers Association warned that the housing market could face a ” large-scale disruption,” due to actions by the Fed that were meant to help the mortgage market.
At issue are the Fed's unprecedented $183 billion of purchases last week of mortgage-backed securities. The purchases were meant to drive down rates, and they did.
The huge volatility in mortgage bonds created massive margin calls from the broker-dealers, who wrote the hedges, to their mortgage bankers. In its letter to regulators, the MBA said: "The dramatic price volatility in the market for agency mortgage-backed securities [MBS] over the past week is leading to broker-dealer margin calls on mortgage lenders' hedge positions that are unsustainable for many such lenders."
Ironically, the MBA had urged the Fed to come in strongly to help the mortgage market. "We understand that when the Fed came into the market, they couldn't come in surgically. They didn't have a scalpel. They only have a sledgehammer," MBA chief economist Micheal Frantantoni told CNBC.
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