The MBS markets underwent a major revaluation in mid-September with the announcement of a huge new program of MBS purchases (QE3) by the Federal Reserve. The after effects of Hurricane Sandy, while less obvious, will also influence levels in the mortgage and MBS markets over the next few months and into 2013.

The third round of quantitative easing committed the Fed to indefinite monthly purchases of about $40 billion of agency MBS. The massive size and open-ended nature of the program stunned traders and pushed MBS prices sharply higher. After initial resistance, primary mortgage rates sank to new all-time lows, initiating another round of refinancing activity; they also facilitated a pop in housing starts and new home sales by improving affordability.

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