The Federal Reserve says it will purchase up to an additional $750 billion of agency mortgage-backed securities, bringing its total MBS purchases to up to $1.25 trillion this year. The Fed will also increase its purchase of agency debt this year by up to $100 billion, bringing the possible total up to $200 billion.
The Federal Open Market Committee, which decided the additional purchases were necessary in order for the Fed to provide greater support to the mortgage lending and housing markets, has also agreed to buy up to $300 billion of longer-term Treasury securities over the next six months. The target federal-funds rate remains unchanged at between zero and 0.25%.
Yields on 10-year Treasury notes dropped to 2.53% from more than 3% the day before, the Wall Street Journal reports, and the rate on 30-year fixed-rate mortgages fell to approximately 4.75%. Stocks jumped, including those for banks such as Bank of America (up 22%), Citigroup (up 23%) and J.P. Morgan Chase (up 8%).
"This is great news for American home buyers and homeowners, because mortgage interest rates will continue to remain at historic lows," National Association of Realtors (NAR) President Charles McMillan says. "NAR has been advocating since last fall that the Fed be more active in buying mortgage-backed securities. We are excited that the Fed acted on this provision of the stimulus plan that we offered to the government in November."
SOURCES: Federal Reserve, Wall Street Journal, NAR