Despite Less MBS Purchases, Fed Still Helping Keep Mortgage Rates Low

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The Federal Reserve today reported on their weekly purchases of agency mortgage-backed securities (MBS). In the five trading days between October 29 and November 4, the Federal Reserve purchased a total of $16.00 billion agency MBS. In those five days the Federal Reserve sold no agency MBS coupons. The Fed's weekly net purchases totaled $16.00 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 $993.13 billion, or 79.5% 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 4:

  • $500  million was used to buy 30 year 4.0 MBS coupons. 3.13 percent of total weekly purchases
  • $3.50 billion was used to buy 30 year 4.5 MBS coupons.  21.88 percent of total weekly purchases
  • $5.65 billion was used to buy 30 year 5.0 MBS coupons.  35.31 percent of total weekly purchases
  • $4.70 billion was used to buy 30 year 5.5 MBS coupons.  29.38 percent of total weekly purchases
  • $1.40 billion was used to buy  30 year 6.0 MBS coupons. 8.75 percent of total weekly purchases
  • $250  million was used to buy 15 year 4.5 MBS coupons. 1.56  percent of total weekly purchases

Of the $16.00 billion net total. 78.5% of the mortgage-backs purchased were Fannie Mae coupons while 20.5% were Freddie Mac, and 10.9% Ginnie Mae.

The Fed's daily purchase average was $3.20 billion per day, a decrease from last week's daily average of $3.60 billion per day.

As a reminder, the Federal Reserve has begun the process of exiting the secondary mortgage market. A gradual slowdown in daily purchases is expected to continue as the Federal Reserve wanes the mortgage market off it's support. However, up to this point the steady withdrawal has yet to affect the performance of MBS coupons versus benchmarks. This is a function of a generally slow pace of new loan production. In fact this past week, the Federal Reserve's participation helped "rate sheet influential" MBS coupons greatly outperform their benchmarks. Thank the Fed that mortgage rates did not rise more this past week.

Here is a chart illustrating the evolution of the Federal Reserve's Agency MBS Purchase Program. Notice the continued reduction of weekly purchases....