Tags: Operation | Twist | fed | Mortgage | Rates

LA Times: ‘Operation Twist’ Aims to Push Mortgage Rates Below 4%

Thursday, 22 Sep 2011 07:55 AM

"Operation Twist," the Federal Reserve's newest economic stimulus measure, seeks to push mortgage rates below 4 percent, hopefully low enough to encourage fence-sitters to buy new homes, the Los Angeles Times reports.

Under Operation Twist, the Fed will sell short-term Treasury securities and buy $400 billion in long-term Treasuries in an effort to push long-term interest rates down and encourage lending, especially when it comes to home loans.

The Fed also says it will reinvest proceeds from maturing investments back into mortgage-backed securities, a move that will make home loans even more attractive.

Previously, the Fed was reinvesting that money in Treasurys.

"The Federal Reserve’s latest economic-stimulus move tells the markets one thing loud and clear: The Fed wants mortgage rates under 4 percent, and soon," the Los Angeles Times reports.

Experts agree.

"It's absolutely clear they’re targeting mortgages," Keith Gumbinger, a principal at mortgage data firm HSH Associates in Pompton Plains, N.Y., tells the newspaper.

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(Getty Images photo)
The average 30-year mortgage rate in mortgage company Freddie Mac's weekly survey hit a record low 4.09 percent last week.

The 4 percent level is a psychological barrier for the market, but "I think we can breach that," says Walter Schmidt, a bond market analyst at FTN Financial in Chicago, the Times adds.

Some see Operation Twist as having a minimal impact on the housing market.

"It's a moderate way of having an effect on the housing market," says Justin Wolfers, economics professor at University of Pennsylvania's Wharton School, according to CNNMoney.

"Those who refinance will find more money in their pocket at the end of the month."

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Operation Twist, the Federal Reserve's newest economic stimulus measure, seeks to push mortgage rates below 4 percent, hopefully low enough to encourage fence-sitters to buy new homes, the Los Angeles Times reports. Under Operation Twist, the Fed will sell short-term...
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Thursday, 22 Sep 2011 07:55 AM
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