The Federal Reserve today announced it would purchase $750 billion worth of government-guaranteed mortgage-backed securities (on top of the $500 billion it already owns), plus $300 billion of longer-term Treasury securities over a 6-month period. This action is expected to exert downward pressure on interest rates of all types, especially mortgage rates. Calculated Risk quotes David Greenlaw of Morgan Stanley in the March 18th Wall Street Journal:
...."The Fed's annoucement signals a clear intent to continue to drive mortagae rates lower and we expect them to meet this objective ..... (I)f the Fed brings 30-year fixed-rate mortgages to 4.5% and all homeowners are able (to) refi, the aggregate permanent cash-flow savings would be on the order of $200 billion/year."
Aside from the fact that not everyone can "refi" (obnoxious term) this seems like a transparent attempt to re-inflate the housing bubble. If a great majority of homeowners can refinance at 4.5%, it means taking on more personal long-term debt (albeit at a great rate!). Something tells me that if the public thinks the recession is easing, folks will take on even more credit-card debt, too. Any sane person can tell you that sooner or later, debt is either written-off or unsustainable. What'll it be, America?
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