The Federal Reserve still appears set to withdraw from the mortgage markets at the end of March according to an article published on DSNews.com:
Fed officials are holding to their plans of pulling back from the secondary market in the coming months. The committee confirmed that its program to purchase mortgage-backed securities (MBS) and debt from the GSEs will come to a close on March 31, as previously signaled. By that time, the Fed says it will have bought $1.25 trillion of MBS and about $175 billion of agency debt. The Federal Reserve has already begun to slow the pace of these purchases to help facilitate a smooth transition when the agency makes its exit.
The Fed created the MBS purchase program last year to help ease the credit crunch in the mortgage financing markets. When lenders fund home loans they often package them up with other home loans in financial instruments called a mortgage-backed securities (MBS). These securities are then sold to investors in the secondary mortgage market, enabling lenders to recover their cash to fund new loans. Because the secondary market virtually froze during the credit crunch that started in 2008, the Federal Reserve stepped in with the MBS purchase program to provide liquidity and push down mortgage rates. Now that the program is ending, a key source of mortgage financing will dry up and the result could be higher mortgage rates.
Michael S. Barr, assistant secretary of the Treasury, says now that markets have begun to stabilize, private participants will start to return when the Fed withdraws its support. He told the Washington Post, “I’m not going to say there will be no effect on rates,” but it should be an orderly transition.
Let’s hope it’s an orderly transition, because mortgage rates impact the affordability of homes. Significantly higher rates will result in added pressures on an already battered housing market.
- CH
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