MBS RECAP: 11/16/2011


(Reuters) – The U.S. economic recovery will likely be a long slog over several years and there is not a whole lot the Federal Reserve can do to speed the process, according to a top economist at the central bank.

One growth-enhancing step policymakers have discussed is expanding purchases of mortgage-backed securities to help heal housing markets. MBS buying helped stop the decline in house prices in 2009, Waller said, but there are questions about whether the move would be as effective now as it was then.

“Now, we don’t see the economy going off a cliff, we don’t see the stock market crashing, we don’t see jobs disappearing by 700,000 a month, so the circumstances are different,” he said. With mortgage interest rates at rock-bottom levels, Waller said it is possible that pretty much anyone able and interested in buying a house has already bought one, so the only benefit would be in encouraging refinancing.

And although many view housing as an essential component of a more robust rebound, it may be unreasonable to expect that sector to rapidly regain any of its pre-crisis sparkle, he added. Housing oversupply and the slow pace of resolving problems from decimated home values will make the pace of recovery in this sector painfully slow, he said.

“It’s going to take a while to get this turned over,” Waller said. “We just have to accept that housing is moribund and we can’t expect it to get us out of this.”
(Editing by James Dalgleish)

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