After two years of efforts to keep mortgage and other interest rates low, the Treasury Department is beginning to take steps that will likely encourage rates to increase over time.
The Treasury Department has announced plans to gradually sell off $142 billion in mortgage-backed securities (MBS) that it acquired in 2008 and 2009 to help stimulate the economy. Beginning this month, it will sell up to $10 billion in MBS per month, depending on market conditions.
The initial purchases were one small part of a stimulus package designed to promote available credit and low mortgage rates by providing a buyer for mortgage securities, which investors were shying away from in the wake of the collapse of the housing market. By selling these same securities now, the Treasury Department is gradually reversing that stimulus.
"We're continuing to wind down the emergency programs that were put in place in 2008 and 2009 to help restore market stability, and the sale of these securities is consistent with that effort," said Mary Miller, Assistant Secretary for Financial Markets. "We will exit this investment at a gradual and orderly pace to maximize the recovery of taxpayer dollars and help protect the process of repair of the housing finance market."
The Treasury Department reports that the market for MBS has improved significantly over the past two years, and that it expects taxpayers will realize a profit on the sales.
While the $142 billion in Treasury MBS purchases has some effect on mortgage rates, they are dwarfed by the $1.25 trillion in mortgage securities purchased by the Federal Reserve at around the same time, and which had a pronounced effect on lowering mortgage rates when announced. The Fed has been slowly decreasing that debt since completing the last of those purchases one year ago.