Fed Ends Purchases of GSE Mortgage-Backed Securities
Yesterday, the Federal Reserve ended its purchases of mortgage-backed securities (MBS) from the government-sponsored enterprises (GSE), including Fannie Mae, Freddie Mac, and Ginnie Mae. The Fed announced the creation of the purchasing program on November 25, 2008, and has since purchased $1.1 trillion worth of GSE securities. Many analysts credit the program with holding mortgage interest rates at near-record lows while also mitigating the national decline in home prices. Others argue that the program has been invaluable instabilizing the economy and preventing a deflationary spiral.
Initially intended to purchase up to $500 billion in MBS's, this limit was increased in March 2009 to $1.25 trillion, where it has remained ever since. Private markets must now sustain such purchases of MBS's for housing markets to remain stable, and many Fed officials and industry analysts seem to believe that they are.
But this is only the second phase of the Fed's exit strategy from MBS's -- the first being announcements of a March 31st end to the program. With over a trillion worth in MBS's on the balance sheet, the Fed will have to develop a strategy for eventually selling these assets. This, however, must occur within the government's broader efforts to restructure and account for Fannie and Freddie (see our past post here).
For more information on GSE MBS purchases, visit Stimulus.org.