The Federal Reserve’s quantitative easing programs contributed to a sharp increase in fee income at the government-sponsored enterprises last year, though subsequent tapering had the opposite effect this year.
As part of its three QE programs, the Federal Open Market Committee has purchased more than $2.3 trillion in Fannie Mae and Freddie Mac mortgage-backed securities.
The investments were just part of the Fed’s effort to respond to the recent financial crisis and its aftermath.
The impact on the GSEs from the Fed’s QE programs was discussed in the report Impact of the Federal Reserve’s Quantitative Easing Programs on Fannie Mae and Freddie Mac from the Federal Housing Finance Agency Office of Inspector General.
Agency MBS investments by the Fed were specifically intended to lower interest rates and stimulate growth in the housing markets.
Lower rates led to a refinance boom that had both Fannie and Freddie benefiting from a sharp increase in guarantee fee rates on the new loans while paying off loans at lower guarantee fee rates.
The GSEs reaped a $4 billion increase in guarantee fee revenues from 2011 to 2013 as a result of the refinance wave.
“The enterprises should generally expect to benefit from the increased guarantee fee revenue over the lifetime of the securities, but are subject to certain risks,” the report said.
As markets began speculating that the Fed would begin tapering its purchases in mid-2013, long-term interest rates began to rise.
The increase dampened refinance activity and contributed to a recent decline in GSE financial performance.
GSE expected guarantee fee revenue on MBS issued in the first half of this year sank 56 percent compared to the first-half 2013.
