In a new report, Rafferty Capital Markets analyst Dick Bove discussed what he sees as an imminent threat in the U.S. mortgage market. According to Bove, a downturn in the U.S. economy could set in play a chain of events that could lead to disaster in the mortgage market.

Since the United States placed Federal National Mortgage Assctn Fnni Me FNMA 6.83% and Federal Home Loan Mortgage Corp FMCC 6.54% under conservatorship, the U.S. government now owns or insures about 60 percent of outstanding U.S. mortgages. Together, Fannie Mae and Freddie Mac own or insure 45.9 percent of the market.

The problem with this situation, Bove elaborated, is that Fannie and Freddie are turning over all of their profits each quarter to the U.S. Treasury and are on track to have no capital by the end of 2017.

Bove said…

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