The Fed’s plan to buy up everything that’s not nailed down in the name of keeping interest rates down isn’t working, as is obvious with the 30-year hovering between 5.25-5.5% right now. A little analysis on their plan’s short-term lack of win (I’ll do a big quote, as it’s WSJ subscriber content):

An analysis of the timing of the Fed’s purchases of mortgage-backed securities by J.P. Morgan Chase & Co. shows the Fed is “under water” on its portfolio by about 10%, and it would have to take about $5 billion in losses if it were to mark its portfolio to the market.

Since last autumn, the Fed has purchased more than $480 billion, out of an allowance of $1.25 trillion, in mortgage-backed securities and more than $130 billion, of $300 billion, in Treasury bonds to help keep mortgage rates low. Keeping rates low lets people refinance their mortgages to reduce payments and stay in their homes. It also encourages them to consider snapping up bargains in the still-ailing housing market. Many analysts believe the Fed plans to hold these securities until they mature in 10 years or so, with no plans to sell them into the market, so the losses will probably never be realized.

The central bank owns the majority of securities sold in 2009, with interest payments of 4%, 4.5% and 5%, according to J.P. Morgan’s research. As interest rates rise, the value of these securities falls because new bonds are backed with higher-interest mortgage loans and thus pay higher coupons.

The Fed has spent about $2,500 per borrower, by J.P. Morgan’s analysis — more than it costs a typical mortgage borrower to refinance their debt. Higher fees and adjustments based on a borrower’s credit score or home’s value have been an impediment to borrowers looking to refinance a mortgage, damping the refinancing wave the Fed hoped for, analysts say.

I wish I had as much confidence as JPM on the “losses will probably never be realized” part, because that requires the assumption that the Fed has been buying up quality goods, and that’s not an assumption I am willing to make just yet.

At any rate, we hope if you needed to refi, you did so during the short period of time that it was actually kind of a screaming deal. At these rates, WSJ claims it’s still a good move for about 40% of homeowners, so all is not lost – unless you’re the Fed.

Also – Zero Hedge is instituting a weekly Federal Reserve balance sheet update. Good bookmarking material.