The Federal Reserve said yesterday that it will be starting its program to buy MBS in early January, according to a Dow Jones report.


Under the program, which was first announced on Nov. 25, the Fed will buy up to $500 billion in MBS issued by Fannie Mae, Freddie Mac and Ginnie Mae.

The Fed also said yesterday that it plans to complete these purchases by the end of 2Q09.


"The program is being established to support the mortgage and housing markets and to foster improved conditions in financial markets more generally," the Fed said.


The central bank is also working on a program to acquire at least $200 billion in consumer-related debt, which could be expanded to include private residential mortgages and commercial real estate-backed debt.


In yesterday's statement, the Fed said it has picked private investment managers to act as its agents in implementing the program. The managers selected are BlackRock, Goldman Sachs Asset Management, PIMCO, and Wellington Management Co.


Eligible assets for purchase are fixed-rate agency MBS that are guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. The program includes, but isn't limited to, 30-year, 20-year, and 15-year securities of these issuers. The program doesn't cover CMOs, REMICs, Trust IOs/Trust POs, and other mortgage derivatives or cash equivalents.


The Fed said that  the investment managers will at first trade only with primary dealers that are eligible to transact directly with the Fed's New York Bank, but noted that dealers are "encouraged" to submit offers for themselves and on behalf of clients.

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