Mortgage market recovery hinges on investors

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(This is Part 1 of a two-part series. Read Part 2, "Subprime relief plan's major flaw.") The financial crisis we are currently in will probably enter the U.S. record book as the second worst in the last 100 years. The worst was in the early 1930s when thousands of banks failed and the mortgage market shut down entirely. It has not shut down this time, thanks in large part to federal institutions created during the '30s to deal with that crisis. The housing finance system is really two overlapping systems that exist side by side. One system consists of portfolio lenders, mostly depository institutions, which hold the mortgage loans they originate. The portfolio system was the larger part of housing finance prior to the savings-and-loan crisis of the 1980s, but gradually lost ground thereafter. The other system consists of temporary lenders who either sell loans in the secondary market to firms that securitize them or resell to still other firms that securitize them. Securitization mean...