How does the buying of MBS by the FED decrease mortgage rates for individual buyers?

I see that the increase in demand for MBS would bring yields lower, disincentivising individuals to invest in MBS. Also, I know that the Fed will be switching from short term MBS to long term MBS, how does this lower mortgage rates exactly?

By | 2013-08-27T13:20:22+00:00 August 27th, 2013|Mortgages Home Loans Interest Rate|1 Comment

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  1. JoeyV August 27, 2013 at 2:10 PM - Reply

    It probably doesn’t but in the Fed’s fantasy world there are lots of banks out there sitting on MBS they don’t like. The Fed will buy those MBS taking away a risk factor for the banks. Then the banks will be all happy about lending out more money to people knowing that they have little mortgage risk on their books and whatever risk they don’t want, they can hand off to the Feds.

    Of course, the banking regulators will see to it that this doesn’t happen so the whole thing is a sham.

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