Mortgages are loans made by banks and lenders that package these loans (securitize) and sell them on Wall Street in the form of bonds called mortgage backed securities (MBS). The money made from the sale of the MBS them goes back to the bank/lender so they can complete more loans. The mortgage payments made by the homeowner eventually pay the investor that has purchased the MBS in which your mortgage resides with other like mortgages.

When the foreclosures started piling up, investors on Wall Street didn’t want to buy these MBS, which dried up bank’s and lender’s continual cash resource from the investor markets. The dried cash pools prevented lenders from mortgage lending. The White House administration pledged $1 trillion dollars to the buy those unwanted MBS, so that lending could continue and keep the housing market alive. The federal government’s involvement allowed mortgage interest rates to fall from 6% to its lowest 4.7% within a year of its involvement and made the volatile housing market an attractive bet as the government announced a healthy profit from its investment into the housing market.

The US Treasury department believes the federal government’s involvement into the housing and MBS markets was supposed to be short-lived and its purpose now completed. Although, many believe it’s too early for a government pullout of the fragile housing market because sales are low and the economy is ailing, but investors and housing market professionals could easily become reliant on the government’s presence and never allow the markets to fully strengthen to a self supporting level.