President

Box 2-3 — continuedMortgage default rates have also varied substantially across regions.Falling house prices and high loan-to-value ratios have likely lifted delinquencyrates in places that had experienced substantial run-ups in prices(such as Las Vegas and Miami), while economic weakness has likelylifted delinquencies in some Midwestern cities.Concerns about risk also affected the secondary market in which mortgagesare bought and securitized, that is, bundled together and sold as a singlesecurity (see Box 2-4). The government-sponsored enterprises (GSEs), FannieMae and Freddie Mac, securitize the majority of prime mortgages below theconforming loan limit. The secondary market for GSE-securitized mortgagesremained active through 2007, presumably largely because some investorsbelieve that these securities have an implicit guarantee from the U.S. FederalGovernment, even though no such guarantee exists. In contrast, the securitizationof jumbo mortgages slowed as investors shied away from securities notcreated by the GSEs.Chapter 2 | 59