There is the appearance that government intervention throughout the mortgage marketplace provides a free lunch: Households, once again, enjoy access to plentiful cheap mortgage Credit, while there’s no impact to the cost of federal borrowings. Why would anyone in their right mind even contemplate an Exit – especially when things remain so fragile? Why not wait a year or two or a few…

Yet I would argue that there is a huge and festering (latent) cost to Washington’s mortgage operations. At some point along the way – and you can count on it being a rather inconvenient juncture for the markets and economy - creditworthiness will become a hot issue. The market will finally demand higher yields for Treasuries, agencies, and GSE MBS – and will surely be less than enamored with our currency. MBS backed by today’s artifically low mortgages will come back to bite. And when the market turns against “federal” debt obligations, you can count on the market really, really turning sour on mortgage risk. That will mark the point when years of government market interventions and distortions come home to roost.

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