Fed Supports Mortgage Market During Settlement Process

The Federal Reserve today reported on their weekly purchases of agency mortgage-backed securities (MBS).

In the five trading days between August 6 and August 12, the Federal Reserve purchased a gross total of $27.069 billion agency MBS. After subtracting sales (providing liquidity during settlement) the Fed's net weekly purchases totaled $20.40 billion agency MBS.

Since the inception of the program the Federal Reserve has spent $741.60 billion, 59.33% of the allocated $1.25 trillion which is scheduled to run out by the end of 2009.

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.

Of the $20.40 billion weekly purchases:

• $200  million was used to buy 30 year 3.5 MBS coupons.  0.98%   of total weekly purchases.
• $3.0   billion was used to buy  30 year 4.5 MBS coupons.  14.71%  of total weekly purchases.
• $10.5 billion was used to buy  30 year 5.0 MBS coupons.   51.47% of total weekly purchases.
• $6.7   billion was used to buy  30 year 5.5 MBS coupons.   32.84% of total weekly purchases.

Of the $20.40 billion net total.

• 87% were Fannie Mae MBS coupons
• 11% were Freddie Mac MBS coupons
• 2%   were Ginnie Mae MBS coupons

The Fed's daily purchase average was $4.08 billion per day, an increase from last week's daily average of $3.83 billion per day.

The Federal Reserve's increased activity in the mortgage market last week can be attributed to the monthly settlement process of “to be announced” mortgage backed securities. The Federal Reserve played a key role in ensuring market liquidity in the days leading up to settlement.

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

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