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**** THE FEDS ARE EXITING THE MORTGAGE BACKED SECURITIES MARKET ****

•The Fed MBS purchases are scheduled to end on March 31st.

•It will take a couple of months for some of these purchases to settle on the Fed's balance sheet (see: the discussion from SIFMA: "To-Be-Announced" Trading of Agency Passthrough Securities)

•The coming increase in the Fed's balance sheet (and the expansion of the Supplementary Financing Program (SFP) over the same period) are related to the MBS settling on the Fed's balance sheet. Now that the short term liquidity facilities are finished - the balance sheet will increase by about $200 billion over the next couple of months as the remaining MBS settle. This expansion would result in an increase in excess reserves, and the almost $200 billion ramp-up in the SFP will counterbalance this increase. The Treasury apparently waited to announce this until the statutory debt ceiling was increased.

•I expect the spread between mortgage rates and the 10 year Treasury yield to rise slowly over a few months by 35 to 50 bps after the Fed stops buying. Others - like the Fed's Brian Sack - thinks any increase will be much smaller until the Fed starts selling MBS. Those worried about an immediate 100 to 200 bps jump in mortgage rates can probably already relax! We will know in a few weeks ...

•A key short term question (for April) is: Will any increase in mortgage rates be enough to seriously impact refinance activity? According to Freddie Mac Primary Mortgage Market Survey® (PMMS®) of lenders, qualifying "30-year fixed-rate mortgage (FRM) averaged 4.95 percent" last week. It seems refinance activity is fairly strong with mortgage rates at or below 5%.and home buyers wanting to make these purchases now before the rate increase.I suggest you contact me today so that we can take advantage of a once in a lifetime opportunity -- apply online at www.FHASUBMISSIONS.COM or contact me by phone (310) 984-0496 Jeffrey Martino Young

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