Mortgage Bond Buying Impacts Consumers’ Interest Rates

The Wall Street Journal reported that large banks, the Federal Reserve, foreign investors, and money managers have all cut purchases of mortgage bonds, contributing to the rise in the 30-year fixed mortgage rate (recently above 7%) for consumers. Some banks plan on holding on to the bonds in their portfolio until maturity, which allows them to avoid selling at a loss given today’s prices. However, this also limits the amount of capital available to purchase newly-originated mortgages, which in turn drives up mortgage rates for consumers. Since the beginning of 2022, large banks report a $133 billion reduction in mortgage holdings, mostly due to maturing bonds where the proceeds are not then reinvested in other mortgage bonds.

Read more.