The Federal Reserve released the Minutes of the Federal Open Market Committee meeting which took place on December 15th and 16th of 2009.

Before I go into the much anticipated housing/mortgage market related details of the text, let me just say that reading all 11 pages of the document will bring you up to speed on economic conditions in a hurry.

So obviously everyone is all excited about recent HINTS of a possible extension of the Fed's MBS Purchase Program. Here is the statement that has many feeling hopeful:

"Some participants remained concerned about the economy’s ability to generate a self-sustaining recovery without government support. In particular,they noted the risk that improvements in the housing
sector might be undercut next year as the Federal Reserve’s purchases of MBS wind down, the homebuyer tax credits expire, and foreclosures and distress sales continue."

AND THEN THIS ONE:

"In the residential real estate sector, home sales and construction had risen relative to the very low levels reported in the spring; moreover, house prices appeared to be stabilizing and in some areas had reportedly
moved higher. Generally, the outlook was for gains in housing activity to continue. However, some participants still viewed the improved outlook as quite tentative and again pointed to potential sources of softness,
including the termination next year of the temporary tax credits for homebuyers and the downward pressure that further increases in foreclosures could put on house prices. Moreover, mortgage markets could come
under pressure as the Federal Reserve’s agency MBS purchases wind down."

AND HERE IS THE LAST "HINT":

The Committee emphasized that it would continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. A few members noted that resource slack was expected to diminish only slowly and observed that it might become desirable at some point in the future to provide more policy stimulus by expanding the planned scale of the Committee’s large-scale asset purchases and continuing them beyond the first quarter, especially if the outlook for economic growth were to weaken or if mortgage  market functioning were to deteriorate. One member thought that the improvement in financial market conditions and the economic outlook suggested that the quantity of planned asset purchases could be scaled back, and that it might become appropriate to begin reducing the Federal Reserve’s holdings of longer-term assets if the recovery gains strength over time.

Although I understand why one would be enthused after reading headlines like "Fed may re-enter MBS market later in 2010" ...it is very important to remember one thing: THIS IS NOTHING NEW

On December 3, 2009, Ben Bernanke sat before the US Senate Committee on Banking, Housing, and Urban Affairs for his re-appointment confirmation hearing. When questioned by Sen. Bob Corker about MBS purchases, Bernanke responded with the following:

"We have said that the current program is going to come to an end at the end of the first quarter. It is a monetary policy decision and the committee will have to see how the economy is evolving and whether or not we need to do more.....In order to try to mitigate the effects we have been tapering it off very slowly and so far we have not seen much effect but we'll see how that evolves and the committee is prepared to respond if necessary."

btw we told you about that on December 3, 2009. READ MORE

Here is a video of the exchange. Bernanke's MBS comments are 8 minutes and 35 seconds into the clip.

I have to be honest...I want the Fed out of the MBS market. You want them out too! If the housing market is to really recover, the mortgage market must remove itself from the teat of the Federal Reserve.

What we  should be discussing is WHO WILL TAKE THE PLACE OF THE FEDERAL RESERVE AS THE LIQUIDITY PROVIDER IN THE MBS MARKET. The Fed's "if conditions warrant" statement should be reworded to say: "if GSE reform falls flat on its face, we will have no choice but to extend". GSE Reform is the real issue we should be worried about...

Our first major indication of a plan for that will likely come when President Obama submits his 2011 budget proposal in February. Unfortunately, it appears unlikely that GSE REFORM will occur in time to allow the Fed to exit the mortgage market...so yes I do think the Fed will be forced to extend the program. That shouldn't stop us from discussing plans that would allow the Fed to exit though.