Louis — what is securitized remains securitized.

Greg — yes, they will have to hedge their prepayment/extension risk, perhaps use swaptions, and watch their mix of fixed and floating debt. Asset-liability management gets harder.

Which is, by the way, it works in almost all European countries – where covered bonds are in use and where they are not so developed.

In other words, if this is successful over time, the prevalence of fixed-rate long-term mortgages will need to decline.

With all the credit quality restrictions, this just looks like and opportunity to loot all of the good mortgages in the system. what do the guys do with all the stinkers that are currently securitized? As you said, this helps the big banks. Some ships are going to sail and some are going to sink. I would guess all that the big banks can afford now is 4%. And it seems that the “right of offset” has just been expanded.

This reminds me of the days back in the early 80ies, meaning “early days”, before the surge in mutual funds and the great market boom. Many (even small towns) had someone brokering Trust Deeds, backed by mortgages. First trust deeds, secured mainly by residential mortgages in the area; seconds, paying much higher interest, etc.

Credit even for high quality borrowers being hard to come by, maybe these kind of businesses will come back in numbers.

Just a thought.