New research released Monday showed that the first round of the Federal Reserve's bond-buying program helped most in the regions of the country where it was hardly needed. The research was carried out by a team of economists from the University of Chicago and the New York Fed and will be presented at a Brookings Institution conference.
The findings indicated that metro areas hit hardest by the recession got the least of Fed stimulus.
The regulator's desire with its first round of asset purchases to boost mortgage activity was at issue.
Mortgage originations, mostly refinancing existing loans, did boom after the Fed announced in November 2008 it would purchase $500 billion of agency mortgage backed securities and $100 billion of direct obligations of Fannie Mae and Freddie Mac.
But the study found mortgage refinancings increased mainly in parts of the country with the fewest underwater homeowners.
The research indicated that ratios varied widely across regions.
Refinancing activity increased most in places where there were few
mortgage holders with a loan-to-value ratio above 0.8%, areas including
Buffalo, New York and Philadelphia. Most places that experienced
large declines in home prices had loan-to-value ratios well above that
level. Those included Las Vegas, Miami and Orlando.
Therefore, the smallest refinancing response for QE1 took place in the locations that were hit hardest by the recession.
Areas in which car purchases increased the most were the same where borrowers refinanced the most in early 2009.
Another report to be presented at the Brookings conference said the Fed’s quantitative easing programs did not exacerbate income inequality.
Research and policy director of the Economic Policy Institute Josh Bivens said it is unclear if the Fed’s programs were slightly regressive or progressive. While stock price gains benefitted the top 1%, home prices increases helped the bottom 90%, he said.
He warned that the central bank would foster inequality if it rushes to the tighten before the labor market returns to full employment.
