The $500 Billion Buy Up Of MBS: Is It Really Enough?


Across the spectrum of the folks who talk about housing as much as I do, it seems like the Fed’s announcement that it will buy up to $500 billion of Agency MBS is a good thing. It could result in higher liquidity for the residential mortgage industry and much-needed support for all those unlucky types who own mortgage-backed securities.

But is it enough? We got more bad news today about home prices from FHFA and S&P Case Shiller. All pretty much historic drops. Those price drops will result in more borrowers unable to refinance out of their loans.

Now on the good news side, we also got a report from the private sector (and more recently Fannie and Freddie) initiative called Hope Now. It coordinates a nationwide campaign to reach homeowners who may be at risk of losing their homes. Hope Now reports that the mortgage industry prevented 225,000 foreclosures in October, 2008, 13,000 more than the record set last month. “If the current trend continues, in 2008 the mortgage lending industry will prevent more than 2.2 million foreclosures, 45 percent more than in 2007,” says the press release.

I asked the folks at Hope Now why, if so many foreclosures are now being avoided, that the number of Americans losing their homes continues to rise. The answer was that the pool of troubled borrowers is just getting larger and larger. Unfortunately prime jumbos are hitting the skids, apparently downgraded by one of those lovely ratings agencies.

Video: Discussing the current state of the real estate market and the latest housing data with Susan Wachter, real estate professor at Wharton Business School, and CNBC's Diana Olick.

So back to the original premise; if home prices continue to fall and foreclosure relief programs are still struggling to keep up with the ever-increasing number of troubled borrowers, then is the Fed’s purchase of $500 billion going to be enough? You tell me.

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