Friday morning, CNBC reported that support is growing among Fed officials to begin sales of mortgage-backed securities (MBS) from the Fed's portfolio. In a program which ended March 31, the Fed purchased $1.25 trillion of MBS to help lower mortgage rates and boost the economy. According to CNBC, "at least" six members of the Fed's policymaking committee support near-term MBS sales if the economy continues to improve. The selling could begin as soon as the third or fourth quarter of this year. Fed Chief Bernanke still views the likely time frame to begin MBS sales as next year, but his recent comments have indicated a willingness to keep more options open. With the next Fed meeting taking place on Wednesday, the 2:15 et release of its statement will take on added significance. If the Fed actually conveys an intention to begin to sell MBS soon, mortgage rates would be likely to rise on the news.
Here is the summary and podcast of this week’s BlogTalkRadio/Lykken on Lending with Dave Lykken and MBSQuoteline’s Joe Farr. Mortgage rates rose a little last week due primarily to comments made by one of the Fed Bank Presidents and comments made by Fed members during the 1/27 Fed meeting as reported in the minutes released last Wednesday. These comments referred to some Fed members desire to begin to sell parts of its $1.0 trillion portfolio of mortgage backed securities (MBS) “sooner rather than later. This caught the market by surprise as just the week before Fed Chairman Bernanke provided guidance that selling MBS would not occur any time soon. Mortgage related legislation is virtually at standstill. Both the snow days in Washington and the Republican victory in Massachusetts are the cause for the slowdown. Covered bonds were discussed as a potential method of financing non-agency mortgage loans, primarily jumbo loans. Only large on-balance sheet lenders will be likely issuers of covered bonds. The rules and regulations surrounding covered bond issuance are still being developed, but when done covered bonds may become a useful funding source for US banks much as there are for Canadian and European banks today. MBSQuoteline supplies [...]