RealEstateEconomyWatch.com

As the Federal Reserve Bank of New York completed its latest purchases of mortgage backed securities to prop up mortgage interest rates, its president went public with hints that the Fed would consider reopening its soon-to-end program if interest rates spiked or the economy showed new weakness,

The Fed is buying $1.25 trillion in mortgage-backed securities in its effort to prop up the economy but will end purchases by March 31.  To ease the impact on mortgage markets, the central bank has been phasing its MB purchases since the first of the year,

Federal Reserve Bank of New York President William C. Dudley said in interviews with the Nightly Business Report and the Associated Press that the time is right to end the program because the economy is growing and because expanding the purchases would make it harder for the Fed to unwind its support down the road.

Since first of the year, rates fell every until this week until they rose slightly. Freddie Mac’s survey has rates on 30-year fixed-rate mortgage (FRM) averaging 5.01 percent with an average 0.7 point for the week ending February 4, 2010, up from last week when it averaged 4.98 percent. Last year at this time, the 30-year FRM averaged 5.25 percent.

Fed officials have estimated that rates could rise as much as .75 to 1.00 percent with the end of the MBS buyout program.  Since the inception of the program in January 2009, the Fed has spent $1.17 trillion in the MBS market, or 93.83 percent of the allocated $1.25 trillion, which is scheduled to run out in March 2010. This leaves $77.08 billion left to purchase mortgage backed securities.