Fed Seen Slowing Mortgage Bond Purchases to Keep Rates Lower Longer

May 21, 2009 No Comments »

slowdown

In a bid to keep interest rates on mortgages lower for a longer period of the time, the Fed has apparently decided to slow its purchase of mortgage bonds, according to a research note from Credit Suisse.

The analysts said they believe Fed involvement in the mortgage-backed securities market will be necessary well into 2010, and as a result, they’ll need to slow buying so it there’s enough purchasing power to remain engaged next year.

So far this year, the Fed has purchased a hefty $457 billion in mortgage bonds issued by Freddie Mac, Fannie Mae, and Ginnie Mae.

It has pledged to buy up to $1.25 trillion in mortgage-backed securities as part of the Homeowner Affordability and Stability Plan announced back in February.

While it somewhat clears up concerns about mortgage rates rising next year, it points to a bottom for mortgage rates, which appeared to be heading lower before hitting a roadblock the last few weeks.

But as the economy improves, the Fed may have more difficulty keeping interest rates in check (how mortgage rates move).

Still, rates are historically very low, and if home prices continue to fall, buying a home may become a reasonable endeavor once again.

However, Moody’s chief economist John Lonski noted today that mortgage rates haven’t fallen enough to stabilize home sales, likely leading to a spring season sales flop for a fourth consecutive year.

(photo: amandabhslater)

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