Wednesday, March 31, 2010

Fed to stop buying from Fannie, Freddie (MBS learns to walk without the crutch)

Wednesday, March 31, 2010

Marketplace

Today, the Federal Reserve will stop buying mortgage-backed securities issued by Fannie Mae and Freddie Mac. Marketplace's Nancy Marshall Genzer looks at what this means for housing and home buyers.

BILL RADKE: Today, the Federal Reserve will kick away one of its props for the housing market. The Fed will stop buying mortgage-backed securities issued by Fannie Mae and Freddie Mac. Marketplace's Nancy Marshall Genzer looks at what this means for housing and home buyers.

NANCY MARSHALL GENZER: Fannie Mae and Freddie Mac buy mortgages from banks and resell them as mortgage-backed securities. As long as Freddie and Fannie can find buyers, mortgage rates stay low.

When the housing market collapsed, nobody wanted these securities. So the Federal Reserve stepped in and bought about a trillion dollars' worth.

Economist Catherine Mann of Brandeis University says now private investors can take over:

CATHERINE MANN: Until the Federal Reserve starts to relinquish its role, the rest of the financial sector has no incentive to get back in the saddle.

Zach Pandl is an economist with Nomura Securities. He thinks it's a gamble for the Fed to step aside:

ZACH PANDL: But the housing recovery is very wobbly at this point. So removing this program, which could potentially lead to higher mortgage rates, may keep the recovery quite weak for some time.

Pandl says the Fed has made clear it will step back in if mortgage rates get too high.

Nancy Marshall Genzer for Marketplace.


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