Federal Reserve investments in agency mortgage-backed securities and U.S. Treasury bonds have been a boon for borrowers who have been able to refinance into the lowest rates of their lifetimes. But the investments are also earning income that is benefiting U.S. taxpayers.
In the heat of the financial crisis, the Fed said it would buy up to $500 billion in MBS guaranteed by Fannie Mae or Freddie Mac.
It’s quantitative easing strategy has since been expanded, with the Fed indicating last month that it would continue to buy agency MBS at a $40 billion monthly pace.
The MBS investments, as well as Fed investments in U.S. Treasury securities, have pulled down mortgage rates to all-time lows. Freddie Mac reported today that 30-year, fixed-rate mortgages averaged 3.40 percent this week. The low rates have fueled a multi-year refinance wave.
The investments have also generated a hefty profit for the Fed.
Estimated net income was $91.0 billion during 2012, the nation’s central banker reported Thursday. That included $80.5 billion in interest on its investments in Treasury Securities, government-sponsored enterprise MBS and GSE debt securities.
Income improved from 2011, when Fed income was $78.9 billion. In fact. it was the highest level back at least until 2003, when Fed income was just $22.0 billion.
The Fed handed over $88.9 billion to the U.S. Department of the Treasury.
In addition, $3.9 billion in interest expenses were paid to depository institutions with reserve balances.
