The Federal Reserve has received a lot of heat in the last few years for committing to back so many bad mortgages. The Federal Housing Administration has increased monthly mortgage insurance premiums several times in the last few years. The increased premium helps to bolster FHA reserves, but it definitely decreases affordability for borrowers because FHA mortgage loan payments increase when mortgage insurance premium rises. FHA loan rates continue to be available at 60-year lows, below 4% on thirty year terms.
Today, the Fed announced that it contributed $76.9 billion in profits to the Treasury Department last year, slightly less than its record 2010 transfer but much more than in any other previous year. The Fed is required by law to turn over its profits to the Treasury each year, a highly lucrative byproduct of the central bank’s continuing campaign to stimulate economic growth.
Nearly 97% of the Fed’s income was generated by interest payments on its investment portfolio, including $2.5 trillion in Treasury securities and mortgage-backed securities, which it has amassed in an effort to decrease borrowing costs for businesses and consumers by reducing long-term interest rates. Through those purchases, the central bank has become the largest single investor in federal debt and securities issued by the government-owned mortgage finance companies Fannie Mae and Freddie Mac. As a consequence, most of the money flowing into the Fed’s coffers comes from taxpayers.
