The Federal Reserve might start purchasing agency MBS again if the Obama administration can cobble together an effective program to refinance Fannie Mae and Freddie Mac guaranteed loans, according to a new report from Keefe, Bruyette & Woods (KBW).

"We believe that the Fed has given its stamp of approval to such a program and would probably support it with monetary policy if implemented," the investment banking firm writes.  

In reaching this conclusion, KBW equity analyst Mark Pawlak links comments by Fed chairman Ben Bernanke and recent news reports that Fed officials are frustrated that so many Americans are blocked from refinancing and reaping the economic benefits of the record low-rate mortgages.

Pawlak specifically cited the Fed chief's Aug. 26 speech in Jackson Hole, Wyo., where Bernanke noted the housing sector is in a “very deep slump” but it would eventually recover due to population growth and household formation. "Good proactive housing policies could help speed the process," he added.

If President Obama announces a GSE refinance program, "we would expect the Fed to follow up with support at their meeting on September 20 and 21," the KBW analyst says in the Aug. 25 report.

That support would be to start purchasing Fannie and Freddie MBS again.

The central bank purchased $1.25 trillion of agency MBS in 2009 through the end of the first quarter of 2010. That MBS portfolio has been running off and the Fed is using the proceeds to purchase Treasury securities.

If KBW is right, the Fed would use the proceeds to purchase agency MBS to support the administration's refi program.

The Federal Reserve had $892.5 billion in agency MBS remaining in its portfolio as of August 24.

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