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MORTGAGE-BACKED SECURITIES: Likely, They are the Key to Keeping Rates On Home Loans Modest! Should Fed Program End?

REVIEW OF NOTES FROM FEDERAL RESERVE MEETING OF MID-DECEMBER REVEALS MIXED OPINIONS AMONG BOARD MEMBERS!

Beginning early in 2009, The Fed began to purchase billions, no TRILLIONS of securities backed by privately-issued mortgages.  Indeed, it is projected that over $1.25 Trillion of mortgage-backed securities will be purchased by The Fed by program's end this March.

Likely, ending heavy purchase activity on such securities will cause average Mortgage Interest Rates to climb. Will this reaction derail any improvement in the U.S. Housing Market made to date?  Or, is it the next necessary step, as the U.S. Economy improves, in order to wean U.S. Taxpayers off of costly stimulus programs.

As reported in a story by Wall Street Journal Reporter Jon Hilsenrath, there were mixed feelings at the December Fed Meeting on whether the purchase of Mortgage-Backed Securities should be scaled back, or continued, and for how long in 2010. 

Some Fed participants were concerned about the fragility of the U.S. Housing Market Recovery - can it be sustained by itself without federal help?  Others see the U.S. Economy building steam, and see a scaled back Security Purchase Program as necessary to keep inflation in check.  They point to improving employment figures, sales of consumer goods, sales of homes in many markets, and better productivity across several bell-weather industries.

Some Fed Governors see continued growth in the economy, but they don't expect marked improvement of the double-digit U.S. Unemployment Rate anytime soon.

Many experts credit Fed investment in Mortgage-Backed Securities, helping to keep the benchmark Fed Funds Rate close to zero, with bringing improvement to the financial and housing markets.  Even those who favor curtailment of the Securities purchase feel The Fed would reverse course, and ramp up Mortgage-Backed Securities Purchases, should the Economic Recovery appear to falter.

Remember, as well - 2010 is an Election Year.  Causing a stall or reversal in any Economic Recovery simply will not be good politics this year.  Several observers say this could be a factor in Fed Policy Decisions this year.

Time will tell, we imagine!

DEAN MOSS & DEAN'S TEAM CHICAGO

Posted: Thursday, January 14, 2010 10:52 PM by Dean's Team

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