Did the Federal Reserve's MBS Purchase Program Lower Mortgage Rates?

Figure 1: Federal Reserve Intervention in the Agency MBS MarketSource

Figure 1 has 3 panels. The first panel is a time series of the Federal Reserve's purchases of mortgage backed securities. It begins in January 2009 and ends in March 2010. Between 1 and 7 billion dollars worth of securities are purchased every day, and there are more purchases in the beginning of the period than in the end.

The second panels is again a time series showing the ratio of Fed MBS purchases to the total amount of MBS issued. It is of monthly frequency, begins in January 2009, and ends in March 2010. The ratio hovers around 100 percent with only a slight negative correlation with time.

The third panel shows the share of outstanding MBS held by the Federal Reserve. It is a time series that begins in January 2009 and ends in September 2010. It begins at zero and increases until reaching about 31% in August 2010. The rate of growth is faster at the beginning, but only slightly.

Figure 2: Mortgage Rates and Mortgage Risk PremiumsSource:

Figure 2 has 3 panels. All three panels contain the Announcement, Market Transition, Normal Pricing, and Post-Fed Periods.

The first panel graphs the mortgage rate for 30 yr fixed rate mortgages, and the yield on current coupon MBS associated with that type of mortgage. The main message is that the two series track each other, with the Mortgage rate always being about 0.9 percentage points higher than the MBS yield. Also, the two series decrease during the Announcement Period quite steeply, and during the Post-Fed Period less steeply. During the Market Transition and Normal Pricing Periods they are stable.

The second panel plots the spread between the mortgage rate for 30 year fixed rate mortgages and the yield on treasury securities with durations equal to the MBS associated with that type of mortgage. This series starts out high during the Announcement Period, decreases during the Market Transition Period, stabilizes during the Normal Pricing Period, and then increases during the Post-Fed Period. The slope of the increase in the Post-Fed Period is less than the magnitude of the decrease during the Market Transition period.

The third panel displays the spread between MBS yields on 30 year fixed rate mortgages and the match duration treasury. These yields are adjusted for prepayment risk. This line has a generally decreasing trend. The time derivative is the most negative during the Announcement and Market Transition Periods.

Figure 3, Panel 1: Risk Premiums in the Secondary Mortgage Market. MBS Yield - Treasury