The Federal Reserve will attempt to put a tailwind behind the housing sector by purchasing $40 billion a month in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, a move that’s intended to keep downward pressure on interest rates.

Under the third round of "quantitative easing," or QE3, announced today, the Fed will also continue to reinvest principal payments from its holdings of Fannie and Freddie debt and MBS.

Editor’s note: this story has been updated.

The Federal Reserve will attempt to put a tailwind behind the housing sector by purchasing $40 billion a month in mortgage-backed securities guaranteed by Fannie Mae and Freddie Mac, a move that’s intended to keep downward pressure on interest rates.

Under the third round of "quantitative easing," or QE3, announced today, the Fed will also continue to reinvest principal payments from its holdings of Fannie and Freddie debt and MBS.

Wrapped up in 2010, the Fed’s first round of quantitative easing — $1.25 trillion in purchases of Fannie and Freddie debt and MBS — helped push mortgage rates below 5 percent. The European debt crisis has kept demand for government-guaranteed MBS — seen as a safe haven by investors — high.

After the Fed’s announcement, Bankrate mortgage blogger Holden Lewis said on Twitter, "I’ve never seen mortgage bond yields this low. We might see the lowest 30-year rates ever in coming days."

Newsweek Daily Beast columnist Daniel Gross said that the apparent goals of QE3 — keeping banks’ cost of capital "at an extremely low level" and bringing mortgage rates low — would be "really important moves" if the economy was plagued by a crippled banking system and high mortgage rates.

But those aren’t the problems facing the economy, he said.

"These are welcome moves, and they might even be useful ones," Gross said. "But they strike me as being aimed at the wrong target."

Low interest rates alone, he explained, "don’t help people scrape together the larger down payments required to buy a house. And low interest rates alone won’t magically reflate housing values in areas where supply far exceeds demand."

In announcing their decision, members of the federal Open Market Committee said they were "concerned that, without further policy accommodation, economic growth might not be strong enough to generate sustained improvement in labor market conditions. Furthermore, strains in global financial markets continue to pose significant downside risks to the economic outlook."

Data received since the committee’s August meeting suggested that economic activity has continued to expand at a "moderate pace," but growth in employment has been slow, and the unemployment rate remains elevated.

"Household spending has continued to advance, but growth in business fixed investment appears to have slowed," the committee said. "The housing sector has shown some further signs of improvement, albeit from a depressed level. Inflation has been subdued, although the prices of some key commodities have increased recently."

Homebuyers finally seem to be responding to lower mortgage rates, with a survey by the Mortgage Bankers Association showing demand for purchase loans during the week ending Sept. 7 up a seasonally adjusted 8 percent from the week before.

Demand for purchase mortgages was up 7 percent from a year ago, the MBA said

Mortgage rates held near record lows this week after a disappointing jobs report Friday cast doubt on the strength of the economic recovery and boosted expectations for QE3.

Rates on 30-year fixed-rate mortgages averaged 3.55 percent with an average 0.6 point for the week ending Sept. 13, unchanged from last week and down from 4.09 percent a year ago, Freddie Mac said in releasing the results of its Primary Mortgage Market Survey. Rates on 30-year fixed-rate mortgages hit an all-time low in Freddie Mac records dating to 1971 of 3.49 percent during the week ending July 26.

For 15-year fixed-rate loans, rates averaged 2.85 percent with an average 0.6 point, down from 2.86 percent last week and 3.3 percent a year ago. Rates on 15-year fixed-rate mortgages, a popular option for homeowners who are refinancing, hit a low in records dating to 1991 of 2.8 percent during the week ending July 26.

Rates on five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans averaged 2.72 percent with an average 0.6 point, down from 2.75 percent last week and 2.99 percent a year ago. Rates on five-year ARM loans hit a low in records dating to 2005 of 2.69 percent during the week ending July 19.

For one-year Treasury-indexed ARM loans, rates averaged 2.61 percent with an average 0.4 point, unchanged from last week and down from 2.81 percent a year ago. That ties an all-time low in records dating to 1984.

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