Should they stay or should they go?: the Fed and the MBS Purchase Program
In late 2008 the Federal Reserve set a goal of purchasing up to $1.25 trillion of agency mortgage backed securities (MBS), $300 billion of treasuries, and $200 billion of agency debt to help lower borrowing costs for homeowners, stimulate the economy, and mitigate the rapidly declining real estate market. While this program, combined with other stimulus efforts such as the home purchase tax credit and HAMP (Home Affordable Modification Program), helped stabilize the real estate market driving down mortgage rates to under 5% in late 2009, analysts and consumers alike now fear that the Fed will cease their purchases, leading to material increases in interest rates across the board. A withdrawal, combined with a high unemployment rate, which stood at 9.7% nationally in December, and rising delinquencies and mortgage foreclosures will likely lead to an increase in interest rates and stall the recovery efforts of the housing market and, thus, the economy.
Given the pending challenges that still lie ahead for the U.S. economy, the big question is, “Will the Fed stay in the game and either remain committed to the purchase program or work through a gradual exit, or will they remain committed to stopping the program in March?” What do you think? Are conditions improving enough to warrant the Fed’s exit?
Posted on 01/19/2010 in Mortgage | Comments (0)
E-mail this to a friend | Link to this post |
