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Posted by on Jan 5, 2009 in Thinking of Buying? | 3 comments | Print Print

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NEW YORK (Dow Jones)–The Federal Reserve Bank of New York said Monday that it has begun buying fixed rate mortgage backed securities, as it previously announced it would do.   The debt securities are guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae, and are being bought via private investment managers.  

In a press release announcing the operation, the New York Fed said the program “is intended to support the mortgage and housing markets and foster improved conditions in financial markets more generally.”   The New York Fed will announce the details of the transactions on its Web site on Thursday.

If the 30-year mortgage rates were under 5%, the streets would be flooded with lookers.  We’ll see if there are any buyers – expect that sellers will want to raise their price!

NEW YORK (Dow Jones)–U.S. mortgage giant Freddie Mac (FRE) said Monday it will issue two benchmark-size bonds – a two year and a five year – as it tests the appetite from investors for its long-term debt securities.  

The mortgage-finance company has had a difficult time in the last couple of months raising money in the debt markets. It now hopes to resume its capital-raising activities like before, which would allow it to continue guaranteeing and buying mortgage bonds.   Last year, investors uncertainty about the extent of government backing to these now nationalized companies and their future kept them cautious from buying the debt.  

However, there’s been a rapid improvement since November when the Federal Reserve started buying these so-called agency debt securities. The Fed so far has bought $15 billion of these securities. Risk premiums that Freddie and Fannie Mae (FNM) pay to investors on these bonds over comparable Treasury yields have tightened dramatically, making it cheaper for these companies to raise money.

3 Comments

  1. While low interest rates are helping, that alone doesn’t guarantee a flood of buyers. Interest rates were almost zero in Japan in a declining market, simply because houses were so wildly overvalued no sane person would buy a house simply because the interest rate was low. It’s called penny wise, pound foolish.

    Bottom line, a 5% interest rate isn’t going to convince anyone to buy what they consider to be an OPT. All it will do is convince people who thinks houses are “only” 5% overpriced (and not in fear of unemployment) that it’s maybe time to buy. There isn’t some magic switch at 5% that says “It’s okay to buy at any price”, and it’s again appalling how overly optimistic people in finance are over and over again.

    Of course in 2009 we’re in a much better position than Japan during most of its decline, and recovery is just around the corner starting anywhere from late 2009 to early 2012 (varying area to area). Some people are going to find an ideal house in a stabilized zip code this year (ex. Oceanside), others are going to wait a few years for their zip code to recover.

    As for financial institutions, we still have more to go for mortgage backed security losses. But I don’t hold it against them for playing hot potato with the investment grenades. I’ll continue to bet against security holders in the stock and bond markets and take their money.

  2. I get scooped again by CR on my own videos!!!!

    That’s three times now!!!

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