GSEs Won't Play Backup When Fed Stops Buying MBS

The nation's GSE regulator says Fannie Mae and Freddie Mac will not provide their traditional support for the mortgage-backed securities market when the Federal Reserve stops purchasing agency MBS at the end of March. The government-sponsored enterprises are already obligated to purchase up to $200 billion in delinquent loans out of their own MBS, according to GSE regulator Edward DeMarco. "Given the size of the enterprises' current outstanding retained portfolios, and the potential volume of delinquent mortgages to be purchased out of guaranteed mortgage-backed security pools, it is my expectation that any net additions to their retained mortgage portfolios would be related to this activity," Mr. DeMarco said. The acting director of the Federal Housing Finance Agency spoke at a Women in Housing and Finance luncheon on Thursday. He stressed that FHFA is "committed to the principle of reducing" the GSEs' retained portfolios. On Thursday, a Freddie economist said Fannie and Freddie have room in their portfolios to buy MBS if private investors don't return to the market. FHFA declined to comment on the economist's remarks. Mr. DeMarco told the WHF luncheon that the Fed's exit from the MBS market will be smooth. "I expect that other private parties will begin to invest in new enterprise mortgage-backed securities as the Federal Reserve gradually withdraws its purchase activity," he said. Since December 2008, the Federal Reserve has purchased nearly $1.2 trillion in Fannie, Freddie and Ginnie Mae MBS. The Fed has $55.1 billion remaining of its $1.25 trillion commitment to support the MBS market.