We are obviously the beneficiaries of the Federal Reserve's push for lower mortgage lending rates, but its unprecedented foray into mortgage lending isn't without risk.

The Fed's debt purchases have ballooned its balance sheet to $2.87 trillion in debt assets from $869 billion a few years ago. Because of the Fed's commitment to purchase $85 billion in additional debt each month, its balance sheet will expand to $4 trillion by the end of 2013.

The Fed's expanded balance sheet is cause for concern. The larger the balance sheet, the riskier the Fed's exit strategy becomes. The prospect of rising interest rates means the Fed risks significant losses (because of the inverse relationship we discuss above). What's more, should the Fed attempt to wind down its portfolio of debt too rapidly, it will roil the Treasury and mortgage-debt markets, thus sending mortgage lending rates higher.

We want to reiterate what we've been reiterating for the past few months: Housing prices are on the rise, while mortgage lending rates remain near historical lows. Housing prices will continue to rise, but there is no guarantee mortgage rates will continue to fall. In short, the benefits of waiting to borrow and buy simply aren't commensurate with the risk of waiting.

 Courtesy of Jessica Regan.

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