The Federal Reserve has dramatically picked up the pace of its mortgage bond purchases in recent months as it seeks to keep the housing finance market on an even keel as borrowers race to refinance.
“The initial focus after the crisis was to put a floor under the depreciation of housing values by increasing demand for those securities,” said Doug Duncan, chief economist at Fannie Mae, in an interview with MarketWatch Friday. While rates have edged back up to 3.75%, they remain low by historical standards. And lower rates matter to the size of the Fed’s mortgage portfolio, because when loans pay off quickly, cash comes in.
But Fed chief Jerome Powell stressed that this would be a temporary, shorter-term mission, not another round of full-blown quantitative easing.Since Aug.1, the Fed has been letting some $20 billion in mortgages runoff its portfolio each month, with proceeds going to purchase Treasury debt. Anything above that $20 billion rolling does gets reinvested back into mortgage bonds, again to manage an orderly exit of its massive holdings.