Fed Governor Wants Gradual and Predictable MBS Sales

The Federal Reserve has no intention in the "near term" of selling off its $1.1 trillion portfolio of GSE-guaranteed mortgage-backed securities, according to Fed governor Kevin Warsh. But when the time comes, the Fed should take a gradual approach that is "communicated well in advance" in selling its Fannie Mae, Freddie Mac and Ginnie Mae MBS, he told the Atlanta Rotary Club on Monday. "Ultimately, in my view, gradual, predictable asset sales by the Fed should facilitate improvements in mortgage finance and financial markets," the Fed governor said. He also noted that sales of MBS or other assets would not necessarily signal that the Fed is going to raise interest rates. "Our [monetary] policy tools can indeed be used independently," Warsh said. The Federal Reserve began purchasing agency MBS in December 2008 to provide liquidity for the mortgage market during the financial crisis. The Fed stopped its purchases at the end of March 2010. However, the Fed said it engaged in a limited amount of coupon swaps on Tuesday to complete the final settlement of $9.2 billion in agency MBS. The Federal Reserve's latest report on its portfolio shows the central bank earned $11 billion in interest income during the first quarter on its agency MBS holdings.