Mortgage Backed Securities Purchase Program: Is $1.25 Trillion Enough?
As the credit crisis crumbled investors' faith in U.S. mortgage-backed securities, Uncle Sam stepped in to provide liquidity to the market and force interest rates to 50-year lows.
And, it worked. If you have good credit, a steady paycheck, and are looking to finance a home loan for $417,000 or less, there has been plenty of cash available to fund your loan.
Plus, mortgage interest rates have held around 5 percent (or below) for months.
But the Federal Reserve Bank, which has spent $1.25 trillion buying U.S. mortgage-backed securities says it will be done buying these loans as of March 31, 2010. (Actually, the Federal Reserve was going to stop buying these loans last December 31, but decided the credit markets weren't quite ready.)
The Fed's move has been widely telegraphed. Everyone knows that come March 31, when the last of the $1.25 trillion has been spent, other investors will have to step up and buy these mortgage-backed securities. Industry observers believe that interest rates will spike anywhere from half to a full percent, or from around 5 percent to maybe 6 percent.
But is the Fed wondering whether the housing and credit markets are ready to stand on their own? Are they wondering if the real estate market will again droop if they withdraw the financial life support?
RealEstateEconomyWatch.com, written by David Lereah, former chief economist of the National Association of Realtors (NAR) and Steve Cook, former spokesperson for the NAR, reports that Fed officials are hinting that more mortgage-backed security purchases might be in the cards if the economy shows signs of weakness.
If the Fed decides to expand its more mortgage-backed securities purchase program again, that would be a huge sign that the housing industry isn't ready to stand on its own.
Fed officials might be concerned about the timing. A month later, on April 30, contracts must be signed in order to qualify for the $8,000 first-time home buyer tax credit and $6,500 trade-up tax credit (home purchases must be closed by June 30, 2010 in order to qualify for the tax credits).
If interest rates jump just before the effective end of the home buyer tax credit, the late spring real estate market could be quite droopy indeed.
Read More:
- Real Estate Pros Meet Up With Home Buyers, Sellers and Owners at RealtyJoin
- Underwater With Your Mortgage? Drowning in Debt? More Homeowners Are Ignoring Money Problems
- 2010 Will Start Strong, But What Happens After The Home Buyer Tax Credits Disappear?
- Home Sales, Prices Falling
- Is the U.S. Housing Market Ready To Stand On Its Own?
- State Unemployment Numbers Worsen: No Job, No Money, No End To The Housing Crisis
- Jobs and Real Estate Still Tied Together
