Boston Federal Reserve President
Eric Rosengren came out on
CNBC yesterday to say that the
Fed should start
QE 3 by purchasing mortgages in order to lower interest rates for borrowers. Now, keep in mind that one Fed president's opinion is not a game-changer. However, let's pretend that the
Fed's next option for
QE 3 is to buy up mortgages to suppress interest rates. If this news were to hit, the markets would rally initially in expectations that
"this time it's different". The really important factor is whether or not purchasing mortages will help spur the housing market (and hence the rest of the economy). Okay, if you haven't fallen asleep yet (then you're a nerd like me) - why would banks lend money out for
30 years at mortgage rates any cheaper than they are today? What will ensue, is the fact that banks will only lend to very high quality creditworthy borrowers, thereby suppressing the housing market. Even mortgage refi's will be depressed due to skeptical banks that would like to have a better
return on investment than
2% for
30 years.
P.S. - On a side note, does the
Boston Fed Prez look like
Craig T. Nelson from the TV series "
Coach"?
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