$1.25 Trillion is Still Real Money: Some Facts About the Effects of the Federal Reserve’s Mortgage Market Investments

55 Pages Posted: 16 Oct 2010

See all articles by Andreas Fuster

Andreas Fuster

Swiss National Bank - Financial Stability

Paul Willen

Federal Reserve Bank of Boston - Research Department; National Bureau of Economic Research (NBER)

Date Written: August 9, 2010

Abstract

This paper measures the effects on the primary U.S. mortgage market of the large-scale asset purchase (LSAP) program in which the Federal Reserve bought $1.25 trillion of mortgage-backed securities in 2009 and 2010. We use an event-study approach and measure the movements in both prices and quantities around the initial announcement of the LSAP and subsequent changes to the program. We use a new dataset to document the changes in the menu of rates and points offered to borrowers and show that there was wide dispersion in the rate changes generated by the announcement of the LSAP program, with some borrowers seeing immediate rate reductions of up to 40 basis points and other borrowers confronting rate increases. We show that the LSAP program led to a substantial boost in market activity, with discontinuous increases in searches, applications and originations for refinance mortgages, but not purchase mortgages. Finally, we show that more creditworthy borrowers were significantly more likely to benefit from the improved credit availability.

JEL Classification: E5, E21, G21

Suggested Citation

Fuster, Andreas and Willen, Paul S., $1.25 Trillion is Still Real Money: Some Facts About the Effects of the Federal Reserve’s Mortgage Market Investments (August 9, 2010). FRB of Boston Public Policy Discussion Paper No. 10-4, Available at SSRN: https://ssrn.com/abstract=1692760 or http://dx.doi.org/10.2139/ssrn.1692760

Andreas Fuster

Swiss National Bank - Financial Stability ( email )

Boersenstrasse 15
Zurich, CH-8022
Switzerland

Paul S. Willen (Contact Author)

Federal Reserve Bank of Boston - Research Department ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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