My real point is that the secondary market is dead right now.

Not quite true. WaMu held on to our mortgage, and claims to hold almost all of its mortgages. Our local bank, State Bank of Southern Utah (I love them!) does the same. MOST banks do sell their mortgages, but there remain exceptions– and coincidentally (?) these tend to be the banks I like to do business with.

There’s also a thriving business in private lending. One of my clients does it– he loans money through a broker, who adds on a 1% fee on each payment collected. The loans are secured by real estate, though if one goes bad it’s hard to foreclose. Interest rates can be as much as 6% higher than a regular mortgage rate, which provides the investor with a significant cash flow.

Until now, these have typically been poor-risk, high-interest, secured loans on business property (like apartment buildings and motels). But as rates go up and credit tightens, I would expect this source of money would become available to lower-risk transactions in the residential market.

That secondary market is now virtually shut down. It’s comatose. They don’t want to write ANY mortgages now, that’s why jumbo rates are so high. No one knows which hedge fund or bank will start wobbling next.

Admittedly the number of individuals who can fund a $1.5 million home on Long Island are few, and I’m certainly not one of them. But my point is, where there’s a demand, there will be a supply. If you could get 13% on a high quality secured loan, when the alternative is to put your cash in a money market for 4.75% or into a bumopy stock market with no security at all, that’s some serious incentive to get into the mortgage business!