NAR Says Fed's Buying of Fannie, Freddie Debt Will Drive Down Interest Rates and Help to Stabilize Housing
WASHINGTON,
November 25, 2008
Great news for home buyers, home sellers and the U.S. economy is how the National Association of Realtors
greeted this morning’s announcement by the Federal Reserve that it will
purchase housing-related debts of Fannie Mae and Freddie Mac, thus
freeing up mortgage money on Main Street.
“This is one of the key actions we’ve been advocating ever since the
Treasury altered its course on how it would use the $700 billion
recovery package passed in September. This is great news for home
buyers and sellers and we applaud the Fed for taking this historic
step,” said NAR President Charles McMillan, a broker with Coldwell
Banker Residential Brokerage in Dallas-Fort Worth. “Housing recovery is
the key to economic recovery in this country and it always has been.”
In a four-point plan submitted to Congress last month, NAR called
for the Treasury Department to purchase mortgage-backed securities
(MBS) from banks to provide price stabilization for housing. Today the
Fed said it would purchase mortgage-backed securities from Fannie Mae,
Freddie Mac, and Ginnie Mae for up to $500 billion. “This will be
critical to a housing recovery,” McMillan said.
Lawrence Yun, NAR chief economist, said purchasing debt obligations
of Fannie and Freddie is an important move. “We commend the Fed
decision because it will directly bring down long-term interest rates,”
he said. “The level of investment should be aggressive enough to bring
interest rates down in a meaningful manner. As we've seen in past
recessions, home sales rise when mortgage interest rates fall.”
Yun said that given the present state of the mortgage market,
interest rates on 30-year fixed-rate mortgages are too high. “If Fed
action brings down mortgage interest rates by even 1 percentage point,
it would increase homes sales by 500,000 units. That should help to
draw inventory down and stabilize prices.”
Yun said higher home sales are critical now to absorb inventory and
stabilize prices. “Only with stabilization in home prices can we have a
healthy housing and economic recovery,” he said.
In its announcement, the Fed said it will purchase up to $100
billion of GSE debt from primary dealers through a series of
competitive auctions to begin next week. Purchases of up to $500
billion in MBS will be conducted by selected asset managers before
year-end. Both the direct obligations and MBS purchases are expected to
take place over several quarters. |