Mortgage securities purchasing by the Fed under discussion

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Services for Real Estate Pros

The Federal Reserve has become the bedrock of the mortgage market, whether it likes it or not. It's buying just about all of the Fannie Mae and Freddie Mac paper, the conforming kind, to provide badly needed liquidity in the secondary market. Private investors are almost non-existent over there; for lack of funds to participate, for still harboring loads of toxic home loan securities in their books or just being wary about getting back into the recently-devastated mortgage bond business.

In the Fed's August Federal Open Market Committee, or FOMC, meeting one of the topics around the table touched on the continuation of its aggressive purchasing program of these mortgage bonds. Since there are some cautious signs that the economy is about to turn around some members felt the critically-important effort should begin winding down. Winding down? That would be premature, to put it bluntly.

Las Vegas area - Henderson, Anthem, Summerlin, Sunrise Manor and North Las Vegas - real estate, to give an example, is still in slow motion, despite some news lately about increased resales. There is still a long way to go before "normal." The same can be said about many other markets, most notably large sections in Arizona, California and Florida. If the secondary mortgage market were to shrink with Fed pulling slowly out, it would roll back some of the nice gains achieved so far. It would delay a solid housing recovery by months, if not longer. And the entire economy would be slow in waking up since housing has such a large impact on it.

The private financial sector worldwide is not strong enough yet to step into the possible vacuum. The Fed's purchasing program should go on well into next year to assure the current gradual expansion gathers steam.

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_______________________________________________________________________________

Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

Comments (9)

George Souto
George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT
Your Connecticut Mortgage Expert

Esko, I agree.  In my opinion, now that they have headed down this road, they would probably do more damage by pulling out than if they never got involved in the first place.

Sep 04, 2009 12:10 PM
Gary Woltal
Keller Williams Realty - Flower Mound, TX
Assoc. Broker Realtor SFR Dallas Ft. Worth

Hopefully Esko, the Fed's actions will not delay any housing recovery.

Sep 04, 2009 12:35 PM
Jim Crawford
Maximum One Executive REALTORS® - Atlanta, GA
Jim Crawford Atlanta Best Listing Agents & REALTOR

If they did stop purchasing mortgage backed securities (which are still more refinances that are upside down...than sales)  the effects could be devastating in our industry.  Rates could rise exponentially since there are not not many in the private sector to buy them.

Sep 05, 2009 02:06 AM
Esko Kiuru
Bethesda, MD

George,

Exactly. The Fed's involvement is crucial right now.

 

 

Sep 05, 2009 01:42 PM
Esko Kiuru
Bethesda, MD

Gary,

I don't think so.

Sep 05, 2009 01:46 PM
Esko Kiuru
Bethesda, MD

Jim,

Yes, rates would leap up and stall much of the current activity.

Sep 05, 2009 01:47 PM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Esko: I believe the Fed. will stop purchasing as many MBS's as they have in the past. Their hope would be that the private sector will pick up the slack. I think this will probably happen although not until sometime next year. I agree with you about some artificial stimulation still needed. Our market is still slow although definitely better and headed in the right direction as compared to 2008. Thanks for the post!

Sep 07, 2009 04:48 AM
Esko Kiuru
Bethesda, MD

Paul,

Hopefully by next year the private sector can pick up the pace.

Sep 08, 2009 06:02 AM
David Cooper
Las Vegas Real estate Foreclosures - Las Vegas, NV

When leaving your cash reserves in a 2% CD becomes painful, a whole new folks with money will venture into real estate.  The Facebook IPO shattered all confidence in the stock market.  

Dec 14, 2012 09:35 AM