The Federal Reserve’s new mortgage bond purchase effort, known as QE3, is helping banks more than it’s helping homeowners, Bloomberg Businessweek reported Sept. 26.
The Fed announced the new bond-buying initiative Sept. 13, but since then rates for 30-year loans have fallen only 0.13 percentage points. However, there has been a drop of about 0.7 percentage points for yields on the bonds into which the loans are being packaged, Bloomberg Businessweek reported. The gap between those two numbers is growing and generally reflects expanded lender revenue. Currently, the gap stands at a record 1.7 percentage points.
The Fed’s goal of boosting a housing market recovery has been hampered by banks’ inability to keep up with homeowner demand for refinancings. While that’s been good for lenders, it hasn’t always been good for homeowners. “It’s a very good time to be a mortgage originator right now,” Kevin Barker, an analyst with broker-dealer Compass Point Research & Trading, told Bloomberg Businessweek.
The Fed is placing bets on the $5.2 trillion market for mortgage bonds backed by Fannie Mae, Freddie Mac and Ginnie Mae. Bloomberg Businessweek reported that about 90 percent of new loans are bundled into securities for sale to investors, thus giving lenders funds to make more loans.
But plunging interest rates have created a backlog of refinancing applications. Bloomberg Businessweek reported that refinancings completed in August took an average of 51 days to complete, up from 42 days in March and 27 days at this point last year. Loans for home purchases took 47 days to process in August compared to 43 days in August 2011.
The Fed’s pledge to keep interest rates near zero through 2013 has been designed to fuel a housing market recovery, which slowly is showing results. Home values have steadily increased for the 20 metropolitan areas tracked by the S&P/Case Shiller index, with an overall increase since last year of 1.2 percent. And the White House’s efforts to make refinancings easier for underwater borrowers have increased refinancing applications.
However, bankers and investors currently are benefiting more than homeowners. Bloomberg Businessweek reported that Fannie Mae securities are trading at 106 cents on the dollar, which is up from 103.3 cents prior to the Fed’s announcement. Lenders, therefore, are getting 6 percent more than the principal amount of loans as well as an income stream of about 0.25 percent.
“With each successive round of easing, the Fed appears to be getting less ‘bang for its printed buck,’” Richard Eckert, an analyst with B. Riley & Co., a securities firm in San Francisco, told Bloomberg Businessweek.