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Mortgage Bankers: What Happens When Fed Stops Buying?

It's my favorite time of year again.

The air is crispy, the leaves are crackly, and the mortgage bankers are crunching numbers once more at their annual convention here in San Diego. The MBA's chief cruncher, Jay Brinkmann, is set to release his forecast here tomorrow, but I found him lurking around the pressroom a few minutes ago, and we got to talking.

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I threw him all the usual questions about loan modifications and rising delinquencies, and are the banks doing enough, and I could go on but I'm already boring myself. But then he volunteered that his biggest concern going forward is what happens to the mortgage market when the Fed stops buying Fannie and Freddie's loans. Apparently, at last report, the Fed was buying 100 percent of their loans. Where are the other investors? Either they still don't want mortgages or the Fed is pricing them out of the market.

Brinkmann says we should worry less about the jumbo loan market, which is pretty darned expensive right now, and more about what happens when the Fed goes cold turkey in March.

"We don't know if rates will go up 20 basis points or 40 or far more," says Brinkmann. Right now origination volume is surging again, mostly thanks to refis, but there are some purchases in there, thanks to those near historic low interest rates. You can talk all you want about the first time homebuyer tax credit, but low rates are the real driver in today's still-limping real estate market.

The Fed was supposed to slowly ease itself out of buying Fannie and Freddie, and they did extend the program from the end of this year through March, but if they're still buying 100 percent of loans now, that makes a transition back to the private market ever harder. Obviously the government has to follow an exit strategy. They can't continue to prop up the market because that's just pushing the pain down the road and at an exorbitant cost at that.

Questions? Comments? RealtyCheck@cnbc.com