Mortgage rates stayed at or near record lows this week, as the Federal Reserve continued a program to buy up $40 billion in mortgage-backed securities issued by Fannie Mae and Freddie Mac each month.

The government’s open-ended MBS purchases — part of a third round of quantitative easing ("QE3") announced by the Fed on Sept. 13 — have helped push mortgage rates into record low territory. Most members of the Fed’s Open Market Committee are expected to vote to maintain those purchases when they meet next week.

But it remains to be seen whether the Fed will extend what’s been dubbed "Operation Twist" — monthly swaps of $45 billion in short-term Treasurys for long ones. Those purchases are scheduled to expire at the end of the year, and some Fed officials are pushing for them to be scaled back or eliminated.

Some analysts think ending or scaling back Fed purchases of long-term Treasurys could dent economic growth and have repercussions for stock market investors. But such a move would not have a direct impact on mortgage rates.

Rates on 30-year fixed-rate mortgage averaged 3.34 percent with an average 0.7 point for the week ending Dec. 6, up from 3.32 percent last week but down from 3.99 percent a year ago, Freddie Mac said in releasing the results of its latest Primary Mortgage Market Survey. Rates on 30-year fixed-rate loans hit a low in Freddie Mac records dating to 1971 of 3.31 percent during the week ending Nov. 21.

For 15-year fixed-rate loans, rates averaged 2.67 percent with an average 0.6 point, up from 2.64 percent last week but down from 3.27 percent a year ago. Rates on 15-year fixed-rate loans hit a low in Freddie Mac records dating to 1991 of 2.63 percent during the week ending Nov. 21.

Rates on five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) loans averaged 2.69 percent this week with an average 0.6 point, down from 2.72 percent last week and 2.93 percent a year ago. That ties a low in records dating to 2005 last seen during the week ending July 19.

For one-year Treasury-indexed ARM loans, rates averaged 2.55 percent with an average 0.4 point, down from 2.56 percent last week and 2.80 percent a year ago. That ties a low in records dating to 1984 last seen during the week ending Nov. 15.

A separate survey by the Mortgage Bankers Association showed demand for purchase loans essentially unchanged during the week ending Nov. 30, with applications up a seasonally adjusted 0.1 percent from the week before, and down 0.1 percent from a year ago.

The Fed’s quantitative easing programs are intended to stimulate economic growth by reducing the cost of borrowing. While it’s generally agreed that the Fed’s MBS purchases have helped push mortgage rates down, the benefits of the Fed’s long-term Treasury purchases have been the subject of debate. In the long run, both MBS and Treasury purchases could spark inflation, critics say.

Richard Fisher, the president of the Dallas Federal Reserve Bank, has questioned the effectiveness of QE3 and would like to see the Fed discontinue both MBS and Treasury purchases, the Wall Street Journal reports. Fisher does not have a seat on the Open Market Committee.

James Bullard, president of the St. Louis Federal Reserve Bank and an alternate member of the Open Market Committee, has proposed reducing the Fed’s purchases of long-term Treasurys to $25 billion a month, Jonathan Spicer reports on the Reuters blog MacroScope.

In a speech last week, Federal Reserve Board Member Jeremy Stein said that by reducing the cost of mortgage borrowing, the Fed’s MBS purchases could be allowing households to spend more — either on a home purchase, or by using proceeds from a refinancing to meet non-housing needs.

But there’s reason to think that future rounds of Fed Treasury purchases will have diminishing returns, at least in terms of corporate investment, Stein said.

"The bottom line is that I suspect that mortgage purchases may confer more macroeconomic stimulus dollar-for-dollar than Treasury purchases," Stein said. "This is of course, not to say that Treasury purchases have no effect on the real economy; research has found that in addition to moving bond prices, they are associated with increases in stock prices, which in turn can have wealth effects on consumption and investment."

Stein, who also has a seat on the Open Market Committee, said the Fed’s Treasury purchases may also have "something of an unintended benefit for financial stability" if they reduce the reliance of corporations and financial firms on short-term debt.

Stein said he supported the Open Market Committee’s decision in October to continue with MBS and Treasury purchases until there is "substantial improvement in the outlook for the labor market."

Fannie Mae economists project that because of the slow pace of the recovery, the Fed will keep buying MBS through all of 2013.  

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