Federal Reserve to Buy $600 Billion in Mortgage Backed Securities

Fed to Buy Mortgages and Mortgage Backed Securities

I’ve spoke many times on these pages and at www.lynnbyrne.com the until mortgage money is freed, real estate sales in general and our Daytona Beach real estate sales will be in trouble. Well the Federal Reserve is buying about $600 billion in loans and repackaged loans in an attempt to free money for lending.

This is a move to get the junk off the balance sheets of banks and mortgage lenders. Unfortunately, the junk ends up on the federal governments balance sheet – translation is that you and me pay. Fox News just estimated that the total cost of the bailouts to date is about $24,000 per man, woman and child in the US. That’s a lot of money.

I’m not sure that this is going to work. As long as the federal government keeps giving money to these lenders, what incentive do they have to actually loan money? It’s like paying them to do nothing. Here’s an alternative – the President calls in the heads of all the federally chartered banks and S&L’s and tells them to loan money or their charters will be pulled. Just a bit of incentive.

In spite of this little rant, the move will probably contribute to moving the process along. It will mean that money will be made available sooner than if it didn’t happen. I don’t expect to see an affect until early next year for Daytona Beach homes. It would be ideal if mortgage money were available when the “normal” buying season begins in February.

A word of caution. When sales do pick up again, most of the sales will be short sales and foreclosures. Until that inventory is cleared, non-distressed properties will not sell unless priced to compete with the distressed properties. For more on how you can take advantage of short sales, check out how Short Sales Can Save You 20 to 40%.

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