>>Ofcourse there is an alternative-the free market!<<
Yeah sure. Show me the investor/bank that is going to hold a 30 year Fixed rate $500,000 whole loan (mortgage) in their portfolio. And if he is, how many can he stick in that portfolio until he runs out of money? You can’t.
But the “free market” hold a say, a 6 month fixed rate mortgage. Only one small problem. The homeowner has to find $500,000 within 6 months to pay off the first loan.
Again, we are talking about “conforming” loan limits, middle class type loans. Not the Jumbo loans where the Govt. does not play a part. A small segment and usually much more limited options for borrowers....i.e. ARMS only, much higher rates, prepays, etc.
The traditional mortgage note holders were S&L’s and banks, but now there’s a hold developed securitization market the does in effect the same thing Fannie and Freddie were doing.