What We're Hearing

The Federal Reserve is staying firm on its commitment to stop buying Fannie Mae and Freddie Mac MBS (and debt) by March 31. That said, speculation began to increase that the GSEs themselves would start buying their own MBS, holding these tradable bonds in portfolio. And maybe they will -- or maybe not. A new letter from Ed DeMarco, acting director of the Federal Housing Finance Agency, says (more or less) don't count on the GSEs being big buyers. In fact, he's sticking to an earlier plan to make sure their portfolios are no larger than $810 billion by yearend 2010. (Both are under that figure presently.) But the cap means they won't be buyers. And if the GSEs aren't buying and the Fed isn't buying that leaves the private sector. And the private sector will want something in return -- yield. Yield means higher rates. Will it play out this way? Stay tuned...