Lately we've been hearing all this talk of the Fed's desire to "stimulate the economy" via QE3 but what is it and how is this (or is this even) going to help the economy? QE stands for "Quantitative Easing" and this will be the third round of it, thus the 3, and we get QE3. And in short, it's an unconventional monetary tool used by central banks to stimulate the economy. Normally, when there's a recession or the economy is limping, the Federal Reserve will reduce short-term interest rates in an effort to spur more lending and spending. But as of now, the Fed has cut interest rates as far as they can go and the economy is still struggling.

So, the next move is what we hear about as QE3. Because the Federal Reserve can just create dollars out of thin air, it can buy up assets like long-term Treasuries or mortgage-backed securities from commercial banks and other institutions. This pumps money into the U.S. economy and reduces long-term interest rates further. When long-term interest rates go down, investors have more incentive to spend their money now....at least in theory anyways.

If this sounds familiar that's because it has been done before, twice in fact: once in November, 2008 and again in August of 2010 (QE1 and QE2). So now the central bank has bought TRILLIONS of dollars in debt that is very slow to mature and the economy is still very sluggish and one can't help but ask, is a third round of this really a good idea? Well, there are no shortage of opinions on that but it's hard to figure out whether this translates into a boost in the actual economy. After all, low mortgage rates can only do so much if banks are still scarred by the housing bubble and remain tightfisted about lending.

But the good news is that the Fed will keep short-term interest rates low until mid-2015 and will continue its policy of easy money "for a considerable time after the economic recovery strengthens." I'm no economist nor am I intelligent enough to break this very complex issue down and debate the pros and cons of it but, this is how I see it from a mortgage broker's perspective. Millions of people lost their jobs and subsequently their homes during the housing crash and it will take several years to repair the damage done to the economy. Keeping rates low for an extended period will allow many people time to put that disaster behind them and get financially stable enough to purchase a home again. This time however, the banks will and are going to be far more careful about lending and thus decrease the risk of future defaults. The housing market is not going to go back to what it was in 2004-2007 but it really shouldn't anyway.