In Shakespeare’s Julius Caesar, Caesar is warned to “beware the Ides of March.”

The same can be said this year for the mortgage market, as the Fed prepares to wean it off government life support (the purchase of mortgage-backed securities) by March 31.

According to a piece this past week in the San Francisco Chronicle:

The Fed started buying securities backed by Fannie Mae, Freddie Mac and Ginnie Mae in January 2009 and originally planned to conclude the program by year’s end. It extended it for three months to ease the impact on mortgage markets, although it didn’t allocate more money. The program’s ultimate cost won’t be known until the Fed sells off the securities, something that officials said it will do gradually starting this year. It’s conceivable that the program could end up generating a modest profit, breaking even or losing money, depending on what prices the securities go for.

While experts agree that the Fed’s exit will cause mortgage rates to rise, the big unknown is how severe the effect will be.

Other federally funded housing market shore-up programs are also undergoing changes that may rock the recovery boat:

  • The home buyers’ tax credit expires on April 30;
  • FHA loans with new, more stringent lending criteria were announced last month;
  • HAMP acts to stem foreclosures, but if homeowners default on those modified loans, a delayed wave of foreclosures could further erode home prices.


Leave a Reply