Federal Reserve Begins Pull Back on Mortgage Securities

As reported to you last month, the Federal Reserve will be hitting its cap on purchases of mortgage backed securities sometime in March or early April. This program was created y the Federal Reserve to add liquidity to mortgage market which in turn was intended to lower rates, keep people in homes, slow the pace of foreclosures, increase home sales and ultimately help the economy to recover from the deepest recession we have seen since the Great Depression. The Federal Reserve will cut their purchases of mortgage backed securities by Billions, yes that is Billions with a “B,” each week as they approach their established cap. I have to say with all the “stimulus” programs that are out there through our current administration, this is one of the “packages” that has actually worked!!! Not to mention it has been a tremendous investment for the Feds since they have been purchasing undoubtedly the most pristine mortgages we have seen in probably 30+ years due to the radical changes in guidelines where borrowers actually have to have a job, verify their income, put money into the transaction, and actually have had to pay their bills on time. ...what a novel concept! As rates rise, the value of these securities will rise and the FEDS will actually get a huge return on their/our investment...as opposed to the other things the current administration has done which will ultimately cost us money. So, the only real “stimulus package” that has truly worked and will ultimately not only pay for it self but may actually make the government money is about to come to an end??? Do they really think we are out of the recession??? Where do they think rates will go without liquidity in the mortgage backed securities arena??? The answer is that rates will move higher, foreclosures will begin to rise again, and home prices will fall again driving the economy further into this recession and putting off any potential recovery for our economy for another year or two. Is there hope??? I believe so as we are once again into another election year which tends to be a great motivator for those running for reelection...especially if their constituents are unemployed and facing the loss of their home.