Fed Has $345 Billion Left to Spend on Agency MBS

The Federal Reserve today reported on their weekly purchases of agency mortgage-backed securities (MBS). In the five trading days between September 24 and September 30, the Federal Reserve purchased a total of $29.10 billion agency MBS. In those five days the Federal Reserve sold (dollar rolls) a total of $9.10 billion agency MBS, bringing the weekly net total to $20.00 billion.

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 the Federal Reserve has spent $904.93 billion, or 72.4% of the allocated $1.25 trillion which is scheduled to run out in March 2010.

Of the net $20.00 billion purchases made in the week ending September 30:

• $3.775 billion was used to buy 30 year 4.5 MBS coupons.  18.88% of total weekly purchases.
• $7.600 billion was used to buy 30 year 5.0 MBS coupons.  38.00%  of total weekly purchases.
• $7.450  billion was used to buy 30 year 5.5 MBS coupons. 37.25% of total weekly purchases.
• $425 million was used to buy 15 year 4.0 MBS coupons.    2.13% of total weekly purchases
• $750 million was used to buy 15 year 4.5 MBS coupons.    3.75% of total weekly purchases.

53% of the mortgage-backs purchased were Fannie Mae coupons while 38% were Freddie Mac, and 9% Ginnie Mae.

The Fed's daily purchase average was $4.00 billion per day, a decrease from last week's daily average of $4.605 billion per day. This marks the third consecutuve week that the Fed has slowed their daily purchase totals.

A slowdown of daily purchases is expected as the Fed begins to wind down the agency MBS purchase program. Up to this point, the beginning of the Fed's gradual withdrawal from the mortgage market has not affected the performance of MBS coupons against benchmarks. This is a function of a slowdown in new loan production from originators and a flatter yield curve.

If the Fed was to evenly spend the program's remaining $345 billion until the end of March 2010, they would purchase around $13.5 billion per week.

Here is a chart illustrating the evolution of the Federal Reserve's Agency MBS Purchase Program.*

*30 yr coupons only

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