If you took out a mortgage over the last couple of years, there’s a good chance the holder of that loan is America’s central bank — a consequence of its monetary stimulus efforts throughout the pandemic.
Why it matters: The Fed will face a series of political and economic headaches as it attempts to move away from subsidizing home lending by shrinking its portfolio of mortgage-backed securities.
- The problem: Extracting itself from this market risks crashing the housing industry and creating intense political blowback for incurring financial losses.
By the numbers: Back in February 2020, the Fed owned $1.4 trillion in mortgage-backed securities, and the number was falling rapidly. But when the pandemic took hold, the central bank began a new round of bond purchases (known as “quantitative easing”), swelling that number to $2.7 trillion.
- The policy contributed to ultra-low mortgage rates that stimulated home buying and refinancing activity until recently.
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