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 WASHINGTON – April 1, 2010 – The cessation of a $1.25 trillion U.S. Federal Reserve mortgage-purchasing program has elicited a surprisingly calm reaction from economists. The sky may not fall, after all, with the Fed concluding a program that is credited with propping up the housing market that had stalled to the point of choking in 2008, The New York Times reported Thursday.

“The potential maelstrom of destruction was out there,” said Professor Susan Wachter at the Wharton School at the University of Pennsylvania.

The potential, pointedly, was a collapse of the housing market as banks backed away from lending with their books clogged with toxic assets they were in the habit of selling quickly as bundled securities.

To measure the freeze, the Times said, the spread between rates for 30-year fixed-rate mortgages and 10-year Treasury notes were twice their normal amount in November of 2008, a month after the government seized mortgage giants Fannie Mae and Freddie Mac.

With the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. essentially dead in the water, “We were in a deflationary spiral, causing mortgages to go underwater, more foreclosures and a further decline in housing prices,” said Wachter, whose specialties include real estate and finance. Backed by historically low fund rates, set at zero to 0.25 percent, the purchasing program is credited with keeping mortgage interest rates at near historic lows.

Interest rates frequently fell under 5 percent in the past year.

It also wasn’t long before there were a few Chicken Little types very concerned about what would happen should the program ever cease – a steady patter of left-handed recognition that the program was doing its job. And that has largely abated as the program quietly ended Wednesday.

“Financial markets have improved considerably over the last year, and I am hopeful that mortgages will remain highly affordable even after our purchases cease,” said Janet Yellen, president of the Federal Reserve Bank of San Francisco. “Any significant run-up in mortgage rates would create risks for a housing recovery,” she said.

That risk is covered, the Fed said, by its willingness to jump back in if a significant glitch shows up – a sharp rise in interest rates, for example.

But Lawrence Yun, chief economist at the National Association of Realtors, told the Times 14 words that any Fed policymaker would be happy to hear: “Just as the Fed is stepping out, private investors appear to be stepping in,” Yun said. “As long as there are buyers on Wall Street for mortgages, it should have no impact on consumers.”

“Having said that, it’s possible that the mortgage rate could be higher later in the year, but that would be due to macroeconomic forces unrelated to the Fed purchase program,” Yun said.

Copyright United Press International 2010, Anthony Hall