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Bank, FCB No Show Puts Fed in Panic – Professional Edition

The Fed’s program of money printing was designed to add $600 billion in Treasuries to the System Open Market Account (SOMA) while replacing the MBS that were being paid off from its balance sheet. Last summer’s refinancing boom had triggered a wave of MBS prepayments. When mortgage rates rose in November and December, refinancing dried up, and for the past two weeks the Fed’s balance sheet has seen no MBS prepayments. Because refinancing activity will remain virtually nil as long as mortgage rates remain above their lows, these prepayments should continue to be minimal. The only prepayments will come from payoffs resulting from home sales, which had been running at around 30% of refi volume during the recent refi madness.

If it will not need as much to cover MBS prepayments, why then did the Fed announce on January 12 that it was increasing the amount of QE2 for the next month? Click here to download complete report in pdf format (Professional Edition Subscribers). Try the Professional Edition risk free for thirty days. If, within that time, you don’t find the information useful, I will give you a full refund. It’s that simple. Click here for more information.

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