Oh Crap.

The Federal Reserve has announced that it is terminating its Term Asset-Backed Securities Loan Facility (TALF) at the end of March.

Basically, the Fed buys bonds secured by loans at sub market rates, in order to keep interest rates low.

Well, now that this program is starting to wind down, we are starting to just how much rates will climb when government support is withdrawn, and it ain't pretty:

The end of a Federal Reserve program that helped unlock credit markets is spurring sales of asset- backed bonds with relative yields five times wider than on debt secured by car loans.

The expiration of the Fed’s Term Asset-Backed Securities Loan Facility is driving companies to sell bonds tied to loans that would otherwise require higher yields. Borrowers are offering bonds backed by subprime auto loans, mortgage-servicing payments and assets that have proved hard to sell after the worst credit seizure since the Great Depression.

They are talking about auto loans, where the spread (It's not clear, but I think that this is in comparison to treasuries) for TALF instruments is 0.35% and for non-TALF it is 1.75%.

If the end of the TALF results in anything like a 1% increase in mortgage rates, home sales fall off the cliff again, and they fall hard, because for the same payment, you have about 11% less in home prices, and people buy houses on the basis of monthly payment, not price.