According to WSJ, more than half of U.S. residential mortgage are being made by just three large banks. While big banks are originating lots of mortgages, they are selling nearly all of them to Fannie Mae and Freddie Mac. Treasury-backed entities are guaranteeing about 85% of new mortgages, while the Fed buys 80% of the securities into which these taxpayer-backed mortgages are packaged.
Despite the bust, conforming mortgages that qualify for government backing remain mispriced. That can be seen in the fact that banks have no desire to keep the most common mortgage on their books.
"Too Big to Fail" now becomes even more "Too Big to Fail".
