NEW YORK, Mon Dec 3, 2012 — Frustrated Federal Reserve policymakers on Monday sought an explanation from mortgage lenders as to why the benefits of lower interest rates were not filtering to home buyers as quickly as in the past even as investors benefited.
At an all-day New York Fed workshop, officials from Fannie Mae, Freddie Mac, Wells Fargo & Co. and other big lenders will be asked why there is a growing disconnect between the rates Americans pay on home loans, and the yields on mortgage-backed securities.
The question has puzzled central bank policymakers who worry the situation is undercutting their efforts to stimulate the country’s slow economic recovery from recession.
Since September, when the Fed targeted the U.S. mortgage market with its latest round of large-scale bond purchases, the closely watched spread between the interest rates homeowners pay and what investors reap on mortgage-backed securities has widened to record levels.
The Fed’s purchase of $40 billion per month in agency MBS has made a big splash in the secondary market. Yet in the primary market, the drop in the mortgage rates that home buyers can get from lenders has not been as pronounced as the central bank wanted, lagging historical trend.
This clog in the passage between the primary and secondary markets undermines an important reason for the Fed’s monetary stimulus: kick-starting a housing sector that was at the heart of the 2007-2009 financial crisis, and that has only just begun to show some life.
“There is clearly something that is manifesting as a form of constraint,” Jeremy Stein, a Fed governor, said when asked about mortgage lending at a Boston conference on Friday.