The Federal Reserve Bank of New York announced Monday that it has begun purchasing fixed-rate mortgage-backed securities guaranteed by government-sponsored enterprises. The details of the purchases will be made available on Thursday, January 8th.
The data on the purchases will be updated on a weekly basis every Thursday, the New York Fed said in a statement. In addition, private investment managers will be acting on behalf of the New York Fed in these purchases.
This program was first announced on November 25, 2008 and "is intended to support the mortgage and housing markets and foster improved conditions in financial markets more generally," the Federal Reserve said.
The U.S. central bank said that it will purchase up to $600 billion in mortgage-backed assets, the toxic assets that have been weighing down embattled GSEs like Fannie Mae (FNM) and Freddie Mac (FRE).
Up to $200 billion will be available under the TALF, which will help consumers struggling to get credit. There will also be $20 billion for credit protection provided by the Treasury Department through the Troubled Assets Relief Program - the $700-billion government bailout passed in October.
The Federal Reserve's intervention in the mortgage backed securities market comes in conjunction with the creation of the new lending facility.
The frozen credit markets have pushed spreads of rates on GSE debt and on GSE-guaranteed mortgages wider, making it more difficult to get a mortgage. Fewer home loans have only exacerbated the catastrophic collapse of the housing market, and the Federal Reserve said that the latest program should help begin to turn that around.
"This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally," the Federal Reserve said in a statement on November 25th.
The Federal Reserve will be able to purchase up to $100 billion of Fannie and Freddie's mortgage obligations via a series of auctions, which are slated to begin next week.
Up to $500 billion of Mortgage Backed Securities will be up for sale through a "competitive process" beginning before the end of 2008, the Fed said at the time. Those purchases will take place over several quarters.
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