The Federal Reserve has purchased more than $1 trillion in agency MBS to support the mortgage market this year and Fed officials are trying to wind down its $1.25 trillion purchase program by March 31.

The New York Federal Reserve Bank purchased $1.09 trillion in Fannie Mae, Freddie Mac and Ginnie Mae MBS this year, according to the Federal Housing Finance Agency (FHFA).

At the start of the program in early January, the New York Federal Reserve Bank was purchasing $20 billion to $25 billion in agency MBS a week.

Now the Fed is purchasing agency MBS at a $16 billion weekly rate, which means it could continue at that pace for another 10 weeks.

At the conclusion of its monetary policy meeting on Wednesday (Dec. 16), Fed officials said they are "gradually slowing" the pace of MBS purchases so the last transactions will be completed by the end of the first quarter of 2010.

Mortgage strategists at Credit Suisse said the slowdown in Fed purchases will not affect MBS spreads to any large degree.

"The Fed's exit from the MBS purchase program will likely be well absorbed by the market," according to a weekly Credit Suisse Market Watch publication. After March 31, the "Fed will likely assume a backstop role for the MBS market to prevent a double dip in housing," Credit Suisse strategists say.

In related news, the Treasury Department has purchased over $200 billion in Fannie Mae and Freddie Mac MBS to support the mortgage market, but now it has to decide if will continue that support.

"We expect to provide guidance by the end of the year," Treasury spokeswoman Meg Reilly said. Treasury began the MBS purchase program after the two GSEs were placed in conservatorships in September 2008.

At the time, Treasury said it would terminate the MBS purchase program by the end of 2009. During the summer, Treasury reduced its MBS purchases and it is currently buying about $10 billion a month.

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