WaPo: Government Aid to Mortgage Market to End in March

• January 25th 2010

by Mark Wellborn

The Washington Post published an informative article today about the end of government support to the country’s mortgage market and what that could mean for the housing market. The support has come in the form of the Fed buying mortgage-related securities, which has had the effect of keeping mortgage rates down and spurring both home buying and mortgage refinancing.

In two months, this federal support that has driven mortgage interest rates to historic lows will end, and as The Post notes “will be a momentous test of whether the Obama administration and the Federal Reserve have succeeded in jump-starting the housing market.”

The article is a worthwhile read, but here are some interesting takeaways:

• To keep rates at historic sub-five percent lows, a commitment of $1 trillion was necessary.
• Most experts believe that the only thing that could reverse the decision to end federal support would be another financial crisis.
• The Fed will stop buying back mortgage-related securities on March 31st. They hope that this void is filled by private investors “from China to big Wall Street funds” who will start buying the securities.
• There are some who argue that ending the support is a bad idea. Among other reasons, they cite the March 31st date as falling so close to the expiration of the first-time home buyer tax credit that it would be double-whammy against the fragile housing market.
• Despite all signs that aid will end in March, some industry officials believe that it will in fact continue, noting that Fannie Mae and Freddie Mac can buy “about $300 billion of mortgage securities by the end of the year before they hit their federally mandated limits.”

Needless to say, it will be very interesting to see what happens in the coming months.

This article originally published at https://dc.urbanturf.com/articles/blog/wapo_goverment_aid_to_mortgage_market_to_end_in_march/1711.