MBA: Federal Reserve Overpaying for MBS?

Even though the Federal Reserve plans to wean itself from buying mortgage-backed securities from Fannie Mae and Freddie Mac some time next Spring, the government still accounts for most GSE MBS purchases, according to the Mortgage Bankers Association. Basing its figures on August MBS sales, MBA said the Federal Reserve accounted for 79.5% of all GSE issuances, with the Treasury gobbling up another 9% for a total of 88.5%. MBA chief economist Jay Brinkmann told National Mortgage News that he thinks one explanation for the government buying so much of the product is that they might be overpaying for it, causing other investors to sit on the sidelines and stick to their pricing models. He said private equity money is chasing higher yield returns on such things as distressed assets and commercial properties. "There is no desire to get in at these prices," he said of the GSE MBS market.