The Federal Reserve plans to stop buying mortgage backed securities from Fannie Mae and Freddie Mac. During the financial crisis, the Federal Reserve purchased over $1 trillion in securities from both institutions to keep mortgage rates low and prevent the housing economy from sinking lower.
On March 31, the Federal Reserve plans to put an end to those purchases. It could take months to see the how things play out in the economy. Some are concerned that higher interests right now could produce another home sale slowdown. Others believe that recent market developments show that Fannie Mae and Freddie Mac are able to sell their securities to private investors, so further purchases by the Fed are unnecessary. The Fed also made its intentions clear for months in advance, which would reduce the surprise impact on the financial markets.
The sheer size of the Fed’s purchase program makes this something that we’ll have to monitor.
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