FYI: The Obama administration launched a new website today to provide information about its mortgage modification and refinancing programs. As you may recall, the administration's housing assistance offers two major components including a refinancing program for current mortgages guaranteed by Fannie Mae and Freddie Mac for homes that have declined in value. The other big component of the program is a mortgage modification plan for those who can no longer afford their mortgages. The address for this website is www.makinghomeaffordable.gov.
Trading activity is subdued in the mortgage market as investors take time to consider the varied implications of yesterday's Fed action.
As you know, the members of the Federal Open Market Committee voted unanimously to not only ramp up their direct purchases of mortgage-backed securities by an additional $750 billion - but for the first time since 1960 the Fed will become a direct buyer of up to $300 billion of longer-dated Treasury obligations. On its face there is nothing but good news here for the prospects of steady to fractionally lower mortgage interest rates.
In addition to these two major mortgage market friendly events the Fed's Term Asset-Backed Securities Loan Facility (TALF) will kick-off today. This $200 billion program is designed to break the logjam in the short-term credit markets and allow funds to start flowing once again for credit card receivables, car and student loans and numerous other business credit facilities. If the program is successful the Fed is prepared to ratchet funding up to $1 trillion dollar level.
So why is trading action in the mortgage market so muted so far in today's trading action?
In order to achieve all these lofty objectives the Fed is printing money on a 24/7 basis - a process that could be building the foundation for one of the greatest periods of sharply rising prices for goods and services and skyrocketing interest rates the U.S. has ever seen. The Fed has its work cut out for it here. It will be a matter of timing and technique. Within the next few quarters the Fed will be called upon to simultaneously begin sopping up the massive supply of dollars it has injected into the global economic system in such a manner that it does not inadvertently turn the inflation beast loose -- while avoiding choking the life out of a reviving economy by becoming overly aggressive with their desire to avert an inflationary spiral. If the Fed is successful in this endeavor the health of the housing sector and the economy as a whole will be assured - if they fail -- it is likely we will all look back at this current period in our economic history and consider it the "good old days."
Against this dynamic and very fluid backdrop mortgage investors have elected to take a cautious "wait-and-see" approach before expanding or reducing the size of their portfolios - at least for the near-term.
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