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Borrowers have had trouble keeping up with payments regarding commercial mortgage-backed securities. John M. Mason mentions a quote from an article in the Financial Times, which states, “Approaching the end of August, almost a quarter of all hotel loans bundled into CMBS (Commercial Mortgage-Backed Securities) had failed to pay their mortgage for at least 30 days—classified delinquent—followed by 15 percent of retail loans….” The money supply has skyrocketed to the point where lack of investor protection has raised eyebrows. These delinquencies have played a part in a bigger problem regarding the Fed’s policy of credit inflation, which has resulted in too much money flowing through asset classes without any additions to actual economic output. 

There is a growing consensus that lenders have underwritten financials more favorably than what the financials actually show, leaving borrowers unable to pay off their loans. A study conducted by Professors John Griffin and Alex Priest of the University of Texas at Austin showed that from the 40,000 commercial mortgages comprised of $650 billion that originated from 2013 to 2019, “the actual net income of the mortgaged property trails underwritten net income by 5% or more in 28% of the loans” (Podkul, “Commercial Properties’ Ability to Repay Mortgages Was Overstated, Study Finds”). This trend draws comparisons to the 2008 Great Recession, when underwriting standards were low and practically anyone could have received a loan. If there is a bunch of stimulus money going into benefiting shareholders rather than factors of production, then prices will artificially go up and conditions will lower. As a result, homeowners will end up taking out a mortgage that they may not pay back. 

Despite all of these lingering issues, the Fed is still keeping a firm control over mortgages. Bloomberg reports, “The Fed bought around $300 billion of the bonds in each of March and April, and since then has been buying about $100 billion a month. It now owns almost a third of bonds backed by home loans in the U.S.” (Maloney, “Fed’s Mortgage-Buying Spree at $1 Trillion With No End in Sight”). At this rate, the Fed would own all of the mortgages in the U.S. a year from now. This is a scary scenario because debt would account for 100% of the U.S. GDP by next year, which has not been seen since World War II. This shows that the economy has not actually produced much of value but rather has attempted to inflate the financial markets. Furthermore, if the Fed were to own all of the U.S. mortgages it would have complete power over setting mortgage rates. All of these issues lead to not only a discussion about economics, but also about a conflict of principles in the U.S. because some may believe that the Fed’s actions are in line with communism. 


Jason Caci



Maloney, Christopher. “Fed’s Mortgage-Buying Spree at $1 Trillion With No End in Sight.” Bloomberg, Accessed 3 Sep. 2020. 

Mason, John M. “Commercial Mortgage-Backed Securities: Delinquencies Rising.” Seeking Alpha, Accessed 3 Sep. 2020. 

Podkul, Cezary. “Commercial Properties’ Ability to Repay Mortgages Was Overstated, Study Finds.” Wall Street Journal, Accessed 3 Sep. 2020.

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