mhspring

Fannie, Freddie: Beyond the Balance Sheets

If both GSEs are allowed to go under what happens to the US mortgage market? What entity will step in to perform their function of buying mortgages from originators? I suspect that there would be a significant period of time during which the housing market would come to a screeching halt because only those who don't need a mortgage to buy a home would be able to get one and then at a significantly higher rate. Wat would happen to our economy then? What would happen to all of the banks who count GSE pfds and bonds as part of their capital?
In an ideal world, there would be no GSEs. We don't live in such a world so we are stuck with them and have to keep them afloat at least until the housing market recovers. The common could go to zero but the consequences of letting the pfds go bust will be dire of the loss of bank capital.
BTW: how much of the current crisis is caused by institutions having to mark-to-market securities that are clearly being held to maturity?