[AdamSelene235]

This is the problem, it is the financial equivalent of holding a microphone too close to a speaker. Eventually you run out of gain.

1. Consumers obtain home mortgages from lenders.

2. Lenders sell mortgages to the GSEs or swap them for securities backed by the lenders' mortgages.

3. The GSEs generally bundle mortgages into mortgage- backed securities (MBS) and sell them to investors.(2)

4. With funds from the sale of the securities, GSEs buy more home mortgages from lenders.

5. With proceeds received from the GSEs for their mortgages or from the sale of the GSEs' MBS, the lenders make new loans to home buyers (i.e., cycle back to step 1).

This is precisely how you create a bubble. Read Von Mises, Hayek, Jim Rogers or even Soros (just don't read his political ramblings)

[Southack]

No, that's not how you create a bubble, that's how you create a repeatable business model (the most stable investment possible).

That's why the interest rates on home loans are so low, ie. they have the lowest risk because that business model is so stable.

Each individual home loan that you refer to above is individually insured. Each of those loans are backed by a physical asset, too. Those home loans are bundled into loan packages (MBS) and each overall loan package is then "wrapped" with yet another level of insurance from an entirely different class of insurer. Those loan packages are then sold to thousands of different, vastly diversified investors.

That system is so stable that it could handle massive defaults before it even broke through the first level of insurance, much less the second level - or had to deal with liquidating the assets that back the loans.

Interest rates generally reflect risk. U.S. Treasury bonds are generally considered the riskless, so they usually have the lowest interest rates. Home loans are next, followed by municipal bonds, corporate bonds, consumer loans, et al.