Banks Reap Profits on Mortgages After QE3

Bank profits from new mortgages have soared since the Federal Reserve began its third round of bond purchases two weeks ago, fuelling the debate over the fallout of the latest dose of quantitative easing.

The extent to which QE3 drives down new mortgage rates and helps homeowners or is pocketed by banks will be crucial to the success of the policy and the prospects for growth in the U.S. and global economies next year.

The rise in profit earned by banks from creating new mortgages came as Fed chairman Ben Bernanke sought to defend QE3 against attacks from Republican presidential candidate Mitt Romney and other critics. Mr Romney said last week the Fed was keeping interest rates “artificially low”.

Speaking in Indianapolis on Monday, Mr Bernanke said it would be “inappropriate” and “ineffective” for the Fed to raise interest rates to put pressure on Congress to tackle the deficit. QE3 would not lead to long-term inflation, he said, adding that stronger growth would help savers in the long run despite low interest rates today.

Although the average rate on a fixed 30-year mortgage reached 3.4 percent this week – a record low – mortgage rates could be lower if banks passed on the full drop in their funding costs.

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