Fed Faces Mortgage Challenge
The mortgage market got a lift following Tuesday's announcement that the Federal Reserve was throwing in with a $600 billion resuscitation bid, but as Fortune's Colin Barr points out, history offers at least two examples that the road ahead could be rocky.
The mortgage market got a lift following Tuesday’s announcement that the Federal Reserve was throwing in with a $600 billion resuscitation bid, but as Fortune’s Colin Barr points out, history offers at least two examples that the road ahead could be rocky.
Wait, before you go…Fortune via CNNMoney.com:
The Federal Reserve said Tuesday morning it would spend $600 billion in coming quarters to buy the bonds and mortgage-backed securities issued or guaranteed by Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500). The move, the Fed said, aims “to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally.”
The market reacted positively to the announcement, with the spreads between the yields on agency bonds and similar-duration Treasury securities narrowing. Lower spreads translate to lower mortgage rates, which bring down the cost of buying houses. That generally leads to more house sales — a top priority for officials who want to slow the decline in house prices that is soaking financial-sector balance sheets with losses.
The decision to buy agency debt and mortgage-backed securities shows policymakers are “looking to drive mortgage rates down,” says Bill Larkin, a fixed-income portfolio manager at investment adviser Cabot Money Management in Salem, Mass. “They need to get them close to 5% if they want to get the housing markets going again.”
That will take some doing, though. The rate on a 30-year fixed mortgage was around 6% Monday, before rates fell Tuesday on word of the Fed plan. The lowest rate on record since the St. Louis Fed started tracking conventional 30-year mortgage rates was the 5.23% reached in June 2003, in the midst of the housing bubble that inflated earlier this decade.
If you're reading this, you probably already know that non-profit, independent journalism is under threat worldwide. Independent news sites are overshadowed by larger heavily funded mainstream media that inundate us with hype and noise that barely scratch the surface. We believe that our readers deserve to know the full story. Truthdig writers bravely dig beneath the headlines to give you thought-provoking, investigative reporting and analysis that tells you what’s really happening and who’s rolling up their sleeves to do something about it.
Like you, we believe a well-informed public that doesn’t have blind faith in the status quo can help change the world. Your contribution of as little as $5 monthly or $35 annually will make you a groundbreaking member and lays the foundation of our work.
Support Truthdig
Ear to the Ground
The administration says the moves will safeguard renters and promote rental affordability.
Business & Economy
The cost of living might be rising faster for them.
Asia Pacific
In India, Pakistan, and Sri Lanka, religious politics has led to economic disaster.
Dramatic action is needed now to blunt the immediate pain of vulnerable workers.
The response to the coronavirus pandemic reveals that it’s possible to significantly reduce emissions that cause air pollution and climate change.
The economic pain caused by the coronavirus becomes more painfully clear.
There are currently no responses to this article.
Be the first to respond.