Fed buys $9.3 bln net in agency MBS in latest week

[bemildred]

NEW YORK, Dec 31 (Reuters) - The Federal Reserve bought $9.3 billion net of agency mortgage-backed securities in the latest week, the New York Fed said on its website on Thursday.

The amount is down from the previous week's net purchases of $15.0 billion.

The purchases brought the U.S. central bank's purchase of mortgage bonds guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae to roughly $1.111 trillion since January.

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The Fed aims to buy $1.25 trillion of agency MBS in a bid to bring down mortgage rates and to stimulate the battered housing sector and the overall economy.

http://www.reuters.com/article/idUSN3125366220091231?type=marketsNews

[girl gone mad]

1. They're supposed to be winding this little $$$Trillion gift to the banksters down soon.

Which is thought to be why Fannie & Freddie got the blank check.

Here's what I find interesting from the Treasury release:
1) Does the following mean that the US Treasury will no longer support the MBS property market bubble through Fannie and Freddie buying MBS?

Program Wind Downs
The program that Treasury established under HERA to support the mortgage market by purchasing Government-Sponsored Enterprise (GSE) -guaranteed mortgage-backed securities (MBS) will end on December 31, 2009. By the conclusion of its MBS purchase program, Treasury anticipates that it will have purchased approximately $220 billion of securities across a range of maturities.
The short-term credit facility that Treasury established under HERA for Fannie Mae, Freddie Mac, and the Federal Home Loan Banks will terminate on December 31, 2009. This credit facility was designed to provide a backstop source of liquidity and has not been used.

2) Does the release mean the US Treasury will try to shrink Fannie and Freddie's asset base, meaning that real estate investors won't be able to get mortgages through them anymore (in some long-run scenario)? Or that it won't for three more years, which is the out that allows the Fannie/Freddie mortgage support (i.e. shell/monetization game) to continue? How "committed to principle" is the Treasury? Remember that the $110bn that Treasury has given so far gets multiplied many times over since it's an equity base that Fannie/Freddie lend off of. If a cap is $200bn and the multiplier is 20x, this is opening the door toward a further $2 trillion expansion of Fannie/Freddie's lending, where the $200 bn in front is loss-equity capital that taxpayers take (to bail out stupid homebuyers and debt issuers). This is a massive bailout... yet again.

Amendments to Terms of Preferred Stock Purchase Agreements
At the time the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac into conservatorship in September 2008, Treasury established Preferred Stock Purchase Agreements (PSPAs) to ensure that each firm maintained a positive net worth. Treasury is now amending the PSPAs to allow the cap on Treasury's funding commitment under these agreements to increase as necessary to accommodate any cumulative reduction in net worth over the next three years. At the conclusion of the three year period, the remaining commitment will then be fully available to be drawn per the terms of the agreements.
Neither firm is near the $200 billion per institution limit established under the PSPAs. Total funding provided under these agreements through the third quarter has been $51 billion to Freddie Mac and $60 billion to Fannie Mae. The amendments to these agreements announced today should leave no uncertainty about the Treasury's commitment to support these firms as they continue to play a vital role in the housing market during this current crisis.
The PSPAs also cap the size of the retained mortgage portfolios and require that the portfolios are reduced over time. Treasury is also amending the PSPAs to provide Fannie Mae and Freddie Mac with some additional flexibility to meet the requirement to reduce their portfolios. The portfolio reduction requirement for 2010 and after will be applied to the maximum allowable size of the portfolios – or $900 billion per institution – rather than the actual size of the portfolio at the end of 2009.
Treasury remains committed to the principle of reducing the retained portfolios. To meet this goal, Treasury does not expect Fannie Mae and Freddie Mac to be active buyers to increase the size of their retained mortgage portfolios, but neither is it expected that active selling will be necessary to meet the required targets. FHFA will continue to monitor and oversee the retained portfolio activities in a manner consistent with the FHFA's responsibility as conservator and the requirements of the PSPAs.

I'm waiting for Hussman's views on how to interpret this cryptic release. It just looked like the US govt. is writing its largest loss-driven blank check (after AIG) and no one is paying attention (of course, the Citigroup (C) bailout/guarantees and the Fed's low-quality asset purchases will come home too).

http://seekingalpha.com/article/180077-fannie-freddie-get-blank-taxpayer-check

[bemildred]

2. I don't know what they will do next.

If I had to guess, I would guess they will continue to stall by creating as much new "money" as necessary and "buying" as much financial crap as necessary with it. There is no upside for them in letting it crash. The only thing keeping it up now if the fact that none of the players benefits by bringing it all down.

You sound like you know a great deal more about this than I do.

[westerebus]

3. We really need to start drug testing on an active basis at Treasury.

In short form, here's $200 billion to cover liar loans. Wait a minute, not enough, well Congress put a limit on this. Oh, just by pass Congress (nod,nod,wink,wink) and write a liar loan to cover future losses? Brilliant!

And reduce the portfolio's to $900 billion, but what ever you do, don't sell and don't buy anything.
Brilliant!

So are you loaning or are you not loaning? Neither. Brilliant!

Could you possibly be more obtuse? Not according to the White House Council. Brilliant!

Happy New Year!