Bernanke: So Far, ‘Close to Zero’ Effect on Mortgage Rates

Federal Reserve Chairman Ben Bernanke said today the Fed’s end of its purchases of mortgage-backed securities on April 1 has had a “close to zero” effect on mortgage rates so far, and if a deeper housing crisis were to emerge, it could restart the program.

Answering questions today during testimony before the Joint Economic Committee, Bernanke was confident that the winding down of the MBS purchases, which leaves $1.4 trillion on the Fed’s balance sheet, has not negatively impacted a still weak housing market, as many industry analysts fear.

“The net change since we stopped purchasing is pretty close to zero,” Bernanke told the committee. “At this point, I don’t anticipate any significant impact on mortgage rates. We’re still holding $1.4 trillion in agency MBS and debt … and that amount being taken off the market is having the effect of keeping mortgage rates pretty low.”

Last week, Freddie Mac reported rates on 30-year mortgages had climbed to 5.21 percent, from 5.08 percent the previous week, based in part on higher yields on Treasury notes.

It was the highest level since August. But in recent days, long-term rates seem to have eased. Zillow.com, the real estate marketplace, reports 30-year fixed rates at just below 5 percent.

Bernanke also said today that rates had pulled back this week.

He left open the possibility – if events warrant – that the Fed could reverse course.

“If the economy weakens, and the issue is housing and mortgage rates, there’s nothing that says we couldn’t resume the purchases,” Bernanke said.

Bernanke told the panel that the economy continues on a “moderate recovery,” and that low interest rates would be needed for an extended period of time, echoing the long-held position of the Fed’s policy-making committee, which meets again April 27-28. It has left its benchmark federal funds rate at near zero since December 2008.

“It looks like we’re on a path to moderate recovery, and the risk of a double dip, although not negligible, is certainly less that it was a few months ago,” Bernanke said.