Fed Begins Mortgage Backed Securities Purchases

Weak economic data and strong demand for mortgage-backed securities (MBS) helped mortgage rates remain at historically low levels during the week. Refinancing activity has increased dramatically as borrowers have rushed to take advantage of low rates. As a result, backlogs have developed at almost every step in the origination process, extending the time necessary to close many loans.
On November 25, the Fed announced a plan to purchase as much as $500 billion in MBS. On Monday, the Fed revealed that it had begun to actually purchase securities. The Fed reported that it bought $10.2 billion of a wide range of MBS. Mortgage rates are affected by MBS prices, and this added demand for MBS helped support low rates.
Investors knew that the economy was in tough shape in December, so there was little reaction to Friday’s ugly Employment report. The economy lost 524K jobs in December, and 2.6 million jobs were lost in 2008, mostly during the final four months of the year. The manufacturing and construction sectors remained weak, while there were small gains in education and health care. One bright spot was that wage growth increased at a faster than expected 3.7% annual rate. The current economic weakness also helps support these low mortgage rates