I expect this could break the housing recovery for the near term until the private credit market can once again discover how to create profit mortgaging homes.
PIMCO: End of mortgage buys form of tightening (Reuters) - The end of the Federal Reserve’s program of purchasing $1.25 trillion of mortgage-backed securities at the end of March is a form of tightening monetary policy, the chief of the largest U.S. bond fund manager said on Tuesday.
Mohamed El-Erian, chief executive and co-chief investment officer of Pacific Investment Management Co, or PIMCO, said the end of the Fed’s mortgage program, one of the U.S. central bank’s major support programs, signals a form of credit tightening.
The Federal Reserve Open Market Committee’s statement on Tuesday “met market expectations on the three key aspects of leaving interest rates unchanged, maintaining dovish language about future policy moves and allowing the special programs to lapse,” El-Erian told Reuters.
By the end of March, the Fed plans to have bought $1.25 trillion worth of mortgage-backed securities and about $175 billion worth of agency debt – a process economists and investors have called “quantitative easing.”
The unwind of the program weans the U.S. economy from government support at a time when the Fed believes the recovery is gathering some strength.
