ANCHOR ENGLISH SAYING

I guess the worry would be would somebody else buy all that MBS paper that is out there, and if not, it would be potentially a real problem for housing, wouldn't it?

KRISTINA HOOPER HEAD OF ALLIANZ GLOBAL INVESTORS ENGLISH SAYING

That, there is certainly the potential there. I mean, much of what the Fed is doing is injecting liquidity into the system. And so, when you don't have them out there buying it back, certainly, rates will go up and I think you also run the risk of actually credit getting tighter rather than looser.

ANCHOR ENGLISH SAYING

How solid is the consumer balance sheet? I know mortgage rates obviously historically are low, but in that very short-term perspective everyone has, if they go up to 5% or 6% that actually will sound like a lot for some people. And we know incomes really have not been rising that much over the last couple of years. So does the consumer have that much wiggle room, I guess?

KRISTINA HOOPER HEAD OF ALLIANZ GLOBAL INVESTORS ENGLISH SAYING

It remains to be seen. We do know that in some respects, consumers are in better shape than they were five years ago. What we're seeing is a better balance sheet with lower debt servicing cost in general. We're also seeing a greater focus on non-revolving credit as opposed to revolving credit. So the amount of credit card debt that consumers have has been reduced. They're taking on debt for what I like to think of as personal capex - education loans, car loans- I like that phrase. They're investing theoretically in the future in certain terms of long-term purchases. And those typically carry with them lower interest rates anyway. So what we do see is a consumer that's in better shape. We see an unemployment scenario that is not good but it's getting better. And again, this is a flawed labor recovery, but it is a recovery of sorts. And so on balance, the consumers are probably in better shape, significantly better shape than they were a few years ago. But the question becomes how sustainable is this if rates go up 100 basis points or 150 basis points, and that's what we really need to watch carefully. But if it's a small rise in rates, we probably won't see that big an impact. I think it's also important to think about the other issues facing consumers. Many of them can't avail themselves of low interest rates today because banks have been pretty tight with their lending. And so, maybe the focus needs to be on that or the fact that so many can't avail themselves of refinancing because their mortgages are under water. And so, perhaps the Fed can focus on more conventional or innovative ways to help those consumers who are underwater refinance because many of them are sitting on mortgages that are 7% or 8% that would love to be able to refinance to even 4.5% or 5%.