The Federal Reserve today reported on their weekly purchases of agency mortgage-backed securities (MBS). In the four trading days between November 27 and December 2, the Federal Reserve purchased a total of $16.00 billion agency MBS. In those four days the Federal Reserve sold no agency MBS.
The goal of the Federal Reserve's agency MBS program is to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally. Only fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible assets for the program. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers.
Since the inception of the program in January 2009, the Fed has spent $1.06 trillion in the agency MBS market, or 84.4 percent of the allocated $1.25 trillion, which is scheduled to run out in March 2010.
Of the net $16.00 billion purchases made in the week ending November 27:
- $775 million was used to buy 30 year 4.0 MBS coupons. 4.84 percent of total weekly purchases
- $8.00 billion was used to buy 30 year 4.5 MBS coupons. 50.00 percent of total weekly purchases
- $1.95 billion was used to buy 30 year 5.0 MBS coupons. 12.19 percent of total weekly purchases
- $3.98 billion was used to buy 30 year 5.5 MBS coupons. 24.84 percent of total weekly purchases
- $1.00 billion was used to buy 30 year 6.0 MBS coupons. 6.25 percent of total weekly purchases
- $300 million was used to buy 15 year 4.0 MBS coupons. 1.88 percent of total weekly purchases
48 percent of the mortgage-backs purchased were Fannie Mae MBS, 36 percent were Freddie Mac coupons, and 16 percent were Ginnie Mae coupons.
The Fed's daily purchase average was $4.00 billion per day, an increase from last week's daily average of $3.20billion per day. However, this is a function of a holiday shortened work week an increased amount of loan production sold by lenders last week.
Below is a chart illustrating the evolution of the Federal Reserve's Agency MBS Purchase Program.
Notice the majority of Fed purchases were in 4.5 MBS coupons last week...50%!!!! These are called "production" or "current" coupons and represent loan supply being sold in the secondary mortgage market by loan originators. The Fed's purchases were concentrated in new loan production because mortgage rates were testing all time record lows last week. Lower mortgage rates brought out borrowers and increased loan supply...and the Fed was there to provide liquidity to the lenders who were selling it.
Today, the Chairman of the Federal Reserve, Ben Bernanke, sat before the Senate Finance Committee for his re-appointment confirmation hearing. One Senator brought up an issue that hits home for many mortgage and housing professionals. He stated that many market participants were worried that the Fed's exit from the MBS market would have drastic effects on mortgage rates and therefore have negative consequences on the housing recovery. While Bernanke was unclear what impact the end of the asset purchase program might have on mortgage rates, he did provide further hope that the Federal Reserve had not totally ruled out an extension of the MBS Purchase Program. He stated the following...
"The Fed will have to see how economy is evolving in deciding whether to end mortgage-debt asset buying programs as planned. The committee is prepared to respond to changing economic conditions if necessary"
This is nothing new. Bernanke's comment illustrate the Federal Reserve defensive outlook. More or less, it is a reminder that the economic environment is quite fragile and the Fed is prepared to do what it takes to avoid further contraction.