Tarullo supports purchase of mortgage-backed securities

Federal Reserve Governor Daniel Tarullo recently said in a speech at Columbia University that he is in support of large-scale purchases of mortgage-backed securities to help stabilize home prices and aid the housing market.

According to Tarullo, the housing market has been moving sluggishly for some time, randomly hitting short upward trends in response to the peak effects of fiscal and monetary policy initiatives, Housing Wire reported.

Tarullo believes the high amount of household debt that built up before the housing crisis hit became too burdensome once home prices and values plummeted. The debt has led to underwater mortgages, a high inventory of foreclosed properties and further drops in home equity.

Buying mortgage-backed securities could induce investors to shift to new assets such as bonds and equities. It could also increase the demand for mortgage-backed securities, which would decrease the pressure on mortgage rates and help homeowners be able to refinance and avoid defaulting, Tarullo said.

Similarly, the Federal Reserve Chairman Ben Bernanke recently spoke with Senate Democrats about the European debt crisis and the effect it's having on the U.S. housing market. The Washington Post reported that federal officials discussed the ways financial policies created in response to the housing crisis in 2008 were not drastic enough, and any further initiatives should be stronger to have any impact.

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