Jeffrey Lacker, president of the Federal Reserve Bank of Richmond, said he would like to impose limits on the Federal Reserve’s monthly commitment to purchase $40 billion in mortgage-backed securities as part of the quantitative easing program known as QE3, HousingWire reported Nov. 20.
Speaking at the Shadow Open Market Committee Symposium in New York City Nov. 20, Lacker said the limits would help negate inflation risks and limit the government’s role in housing.
“Purchasing agency MBS encourages the continuation of a housing finance model based heavily on government-sponsored enterprises at a time when the housing sector would be better served by a new model that relies less on government-credit subsidies," Lacker told the conference, HousingWire reported.
Lacker also warned that pushing interest rates extremely low to help conform to current mortgage borrowers ignored the potential for re-inflation of the government-dependent housing finance model by the central bank and only served to artificially steer credit toward the housing market.
“To the extent that purchases of private claims have any effect, they do so by distorting the relative cost of credit among different borrowers,” Lacker told the conference, according to HousingWire. “Such differential effects are unlikely to be beneficial, on net, unless borrowers in the favored sector would otherwise face artificially high rates. I think it's difficult to make this case for agency MBS, a sector that historically has benefited from heavy subsidies, which arguably contributed to dangerously high homeowner leverage.”