IANAE(conomist), but my naive interpretation is this: let’s say the pandemic causes 25% of mortgage holders to become delinquent, a number I don’t think is unreasonable. If the Fed owns a third of all mortgages (and their ownership is a normal distribution of all mortgages, I have no idea if this is true), that’s 25% of $2T that is suddenly at risk.
If the total Fed balance sheet is $7T, that’s 7% of their total assets that could disappear. That seems like a lot to me.
If the total Fed balance sheet is $7T, that’s 7% of their total assets that could disappear. That seems like a lot to me.