Fed to start buying mortgage securities next month
Last update: 5:54 p.m. EST Dec. 30, 2008
(MarketWatch) -- The Federal Reserve said Tuesday that it will start buying mortgage-backed securities in early January in the central bank's latest effort to stabilize housing markets and resuscitate the U.S. economy.
The Fed will only purchase fixed-rate mortgage-backed securities guaranteed by Fannie Mae (FNM), Freddie Mac (FRE) and Ginnie Mae. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers.
The Fed said it will pay for the purchases by creating more bank reserves -- essentially printing money. This is part of a broader strategy being pursued by the Fed and the Treasury to step in as buyers in markets where private participants have pulled back in the face of massive losses.
The Fed unveiled its mortgage-buying plan last month, saying it would purchase up to $500 billion of these securities during the first half of 2009. Mortgage rates dropped significantly after the announcement, sparking hope that home buyers will be lured back into the real-estate market by the cheaper borrowing costs.
BlackRock (BLK), Goldman Sachs' (GS) asset-management unit; Pimco, the bond-investing giant owned by Germany's Allianz (AZ) and Wellington Management Co. were picked to manage the program.[b/] A custodian hasn't been chosen, the Fed added.
These investment managers will use a "passive" buy-and-hold strategy, the Fed revealed.[b/]
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