Don't let it get away!
Keep track of the stocks that matter to you.
Help yourself with the Fool's FREE and easy new watchlist service today.
We all know the Federal Reserve's third round of quantitative easing has been a boon for home lenders. We also know that gravy train may have been coming to an end in the not-too-distant future: It wasn't that long ago the Fed was openly discussing slowing down its massive asset-purchase program sooner rather than later.
But take heart, Foolish bank investors. News from the most recent Federal Open Market Committee meeting suggests the possibility that banking's home-mortgage gravy train could gain steam rather than lose it.
What goes up might go up even further
The Federal Open Market Committee meets eight times per year. The FMOC sets the central bank's monetary and interest rate policy. Its most recent meeting ended on Wednesday.
The result of that meeting is an official statement with a lot of the usual yada yada, along with this very interesting extra line: "The Committee is prepared to increase or reduce the pace of its purchases to maintain appropriate policy accommodation as the outlook for the labor market or inflation changes."
The italics are mine, but the very interesting line -- and all that it implies -- is thanks to Fed Chairman Ben Bernanke and his fellow Fed governors, who see an uncertain future ahead for the U.S. economy.
Potentially good news for bank investors, if no one else
The Fed launched QE3 in Sept. 2012, adding $40 billion in monthly mortgage-backed securities purchases to it's ongoing monthly purchases of $45 billion in other longer-term securities. That $40 billion in MBS purchases is one of the things driving the housing-market resurgence.
In fact, it might be the thing driving the housing-market resurgence. It's also been a revenue driver for the big banks. For the first quarter of 2013: Wells Fargo (NYSE: WFC ) originated $109 billion in home loans; JPMorgan Chase (NYSE: JPM ) originated $57 billion; Bank of America (NYSE: BAC ) originated $24 billion; and Citigroup (NYSE: C ) originated $56.8 billion.
All those loans make for a lot of interest, and therefore revenue and profit, coming back to the banks. The Fed's statement clearly says that it's prepared to increase or decrease asset purchases, and it didn't indicate which assets might come or go, but the fact is that the U.S. housing market has traditionally contributed up to 18% to gross domestic product.
That being the case, one would think if asset purchases do increase, it will be of the mortgage-backed securities variety -- keeping the home-lending gravy train going at least a bit longer. Of course, if it starts to look like a new housing bubble is forming, mortgage-backed securities could also be the first to go.
But the mere fact that the Fed has suggested it could increase its monthly amount of asset purchases is startling. Frankly, it's a sign that things aren't as good as they should be in the overall economy, which most of us know already.
It's also a sign, however, that the home-lending boom that's been such a boon to the banks might be a boon for longer than we thought. And if that's not good news for the economy overall, at least it's good news for bank investors.
Looking for in-depth analysis on Wells Fargo, the nation's top home lender?
Then look no further than this special report on the superbank, researched and written by John Maxfield, Motley Fool senior banking analyst and Wells Fargo specialist.
In it, John cracks the code on Wells Fargo, pinpointing key strengths and weaknesses of the company and zeroing in on reasons to buy and reasons to sell. You'll discover the three most important catalysts that could mean billions or bankruptcy for Wells in the years ahead.