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The Fed now owns nearly one third of all US mortgages

The Fed's balance sheet is ballooning out of control.

Nearly $7 Trillion in Securities, $2 Trillion Mortgages

As of August 26, 2020 the Fed's Balance Sheet is nearly $7 trillion total of which $3.7 trillion are notes or bonds, and nearly $2 trillion in mortgages (Fannie Mae, Freddie Mac, or Ginnie Mae).

No End in Sight to Fed's Mortgage Buying Spree

Bloomberg reports No End in Sight to Fed's Mortgage Buying Spree.

Key Points

  • The Fed has snapped up $1 trillion of mortgage bonds since March. It bought around $300 billion of the bonds in each of March and April, and since then has been buying about $100 billion a month. 
  • The Fed now owns almost a third of bonds backed by home loans in the U.S. 
  • Buying the securities has pushed mortgage rates lower, with the average 30-year rate falling to 2.91% as of last week from 3.3% in early February.
  • Morgan Stanley analysts pointed out in late March that the buying was running at eight times the pace seen in prior episodes of Fed purchasing under programs known as quantitative easing.
  • Just before this latest round, principal payments from its mortgage bond holdings had whittled that down to 21%, but it has now increased back to 30%. 
  • If the Fed maintains its current buying pace, it will again own 34% of the mortgage universe by year’s end.

Fed's Balance Sheet Expansion Over Time

Questions of the Day

  • Does the Fed have everything under control?
  • Is the Fed totally out of control?

Author

Mike “Mish” Shedlock's

Mike “Mish” Shedlock's

Sitka Pacific Capital Management,Llc

Mike “Mish” Shedlock is a registered investment advisor for SitkaPacific Capital Management.

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