http://www.bloomberg.com/news/2013-09-18/fall-in-home-loans-pushing-fed-away-from-taper-in-mortgage-bonds.html
Federal Reserve policy makers, while considering today whether to taper $85 billion in monthly bond buying, confront a drop in demand for home loans that argues against a cut to their mortgage bond purchases.
A surge in mortgage rates to two-year highs has undercut borrowing, pushing down refinancing by more than 70 percent since last September. Wells Fargo & Co. (WFC) said this month originations may fall 29 percent this quarter, while JPMorgan Chase & Co. said volumes may plunge 40 percent in the second half compared with the first six months of the year.
The Fed today would limit the impact from tapering by reducing Treasury purchases rather than mortgage-backed securities, said Michael Gapen, a senior U.S. economist at Barclays Plc in New York. Buying mortgage bonds reduces home loan rates, increases house prices, and pushes up consumer confidence and spending, said Gapen, a former researcher in the Fed’s Division of Monetary Affairs.
“There’s a fair degree of consensus that MBS purchases are more effective than Treasuries in terms of stimulating activity,” said Gapen, who expects the Fed to reduce monthly purchases by $10 billion in Treasuries and $5 billion in mortgage bonds. “It’s a more direct route to housing and household balance sheets.”
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