Sunday, April 3, 2011

FINANCIAL NEWS: Treasury to sell mortgage securities

US has $142b in holdings bought to prop up market

WASHINGTON — The Treasury Department said yesterday that it will begin selling its remaining $142 billion in holdings of mortgage-backed securities purchased during the financial crisis.

Treasury officials said the first sales of up to $10 billion in the securities, primarily issued by troubled mortgage companies Fannie Mae and Freddie Mac, would start this month.

Mary Miller, assistant Treasury secretary, said the sales represented a continuation of efforts by the government to wind down the emergency programs put in place in 2008 and 2009 to help restore market stability.

The Treasury estimated it could bring in an additional $15 billion to $20 billion over what it paid for the $142 billion in mortgage-backed securities it holds. However, that amount would still leave the government with heavy losses from the rescue of Fannie and Freddie in September 2008.

The final cost of the bailout of the two companies has been estimated to be as high as $259 billion, making it by far the government’s costliest rescue operation during the financial crisis.

The Treasury has retained State Street Global Advisors to manage the sales of its mortgage-backed securities. Officials said they would post an accounting of the sales at the end of each month on the Treasury’s website.

The program was designed to stabilize the market for mortgage-backed securities, which investors had started to flee as defaults in the mortgage market began to escalate. The Treasury announced in December 2009 that it was halting the purchase of new securities under the program. At the time it had purchased a total of $220 billion worth of mortgage-backed securities.

In its announcement yesterday, the Treasury said that the market for mortgage-backed securities had “notably improved’’ since 2008 and 2009.

In a fact sheet, the Treasury said it planned to sell up to $10 billion of its $142 billion in mortgage-backed securities per month. At this pace, the Treasury said the whole portfolio would be disposed of in about one year. But it said if market conditions change, it is possible it will take longer to fully exit from the program.

The Treasury said it believed the sales could take place with a “minimal impact’’ on home mortgage rates.

The announcement to sell the remaining holdings of mortgage-backed securities was not related to the impending battle over the debt limit, the Treasury said. Its latest estimate is that the government will reach the current $14.3 trillion borrowing limit between April 15 and May 31.

Republicans are demanding steeper cuts in government spending before they agree to raise the debt limit. Treasury Secretary Timothy Geithner has warned that failure to raise the borrowing limit would trigger an unprecedented default by the government on the national debt, which would drive up the government’s borrowing costs.

Martin Crutsinger Associated Press March 22, 2011

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