No Joke: Housing Market Is On Its Own April 1

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A Federal Reserve program designed to help the mortgage market ends Wednesday. Following the 2008 financial crisis, the Fed plunged into the mortgage-backed securities market. Its goal was to help get credit flowing and hold down interest rates. Starting April 1, that market will be expected to stand on its own again. Would-be home buyers are hoping the change won't nudge interest rates higher.

MARY LOUISE KELLY, host:

Today marks the last day of a major government program aimed at propping up the housing market. At the height of the financial crisis, back in 2008, banks and investors shied away from lending money for home mortgages, so the Federal Reserve stepped in itself to provide money for home loans.

NPR's Chris Arnold reports.

CHRIS ARNOLD: Over the past year and a half, the Fed has bought up $1.2 trillion worth of home mortgages, that's more money that was involved in the entire so-called TARP bank bailout. By making all that money available for home loans, the Fed has pushed down mortgage rates - that's been making it cheaper to buy or refinance a house, and it's been stimulating the economy.

Mr. SCOTT SIMON (Managing director, PIMCO): An incredibly effective program impacting the mortgage rate, which is what they were trying to do.

ARNOLD: Scott Simon oversees mortgage-backed securities at PIMCO, a major investment management firm.

Mr. SIMON: Almost immediately, you had over a one percent drop in mortgage rates for the homeowner, and then ultimately, more like a percent and a half.

ARNOLD: Simon says that's a big reason you saw 30-year fixed rates home loans down below five percent. So the question is, now, when the Feds stop doing this will rates jump way back up? Simon doesn't think so. The Fed has already been tapering off its buying and the market has known this day was coming for many months.

But, others aren't so sure. Barry Habib runs Mortgage Success Source, which tracks rates and trends.

Mr. BARRY HABIB (Chairman, Mortgage Success Source): Hey, if I know that dinner's not coming tonight, it doesn't mean I'm not going to be hungry. Well, I knew dinner wasn't going to be here so I'm not going to be hungry. Of course, you're going to be hungry. Of course, when you stop buying $8 or $10 billion a week it's going to have an impact.

ARNOLD: Habib thinks the Fed pulling out will leave a vacuum in the market that could push up rates up much more than other analysts think.

Chris Arnold, NPR News.

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