Fed Chooses Investment Managers for MBS Effort

The Federal Reserve Board has selected four investment managers to run its mortgage-backed securities purchase program that will begin in early January and buy up to $500 billion in agency MBS by end of the second quarter. The Fed said it selected BlackRock Inc., Goldman Sachs Asset Management, PIMCO and Wellington Management Co. LLP to purchase Fannie Mae, Freddie Mac and Ginnie Mae MBS and employ a "passive buy and hold investment strategy." Credit Suisse analysts expect the Federal Reserve MBS purchases will drive mortgage rates down and boost the issuance of Fannie Mae, Freddie Mac and Ginnie Mae MBS. "We estimate that mortgage rates will get to 4.75% in the first quarter," said Mahesh Swaminathan, a Credit Suisse mortgage strategist. Fannie, Freddie and Ginnie combined MBS issuance has averaged $65 to $70 billion in recent months. "Monthly MBS issuance will rise to $100-$125 billion range in the first quarter of 2009," Mr. Swaminathan said. He expects Ginnie Mae MBS will make up one-third to 40% of monthly issuance.