Archive for December, 2008

Fed aims to buy $500 billion in MBS by mid-year (Reuters)

Tuesday, December 30th, 2008 | Finance News

WASHINGTON (Reuters) –
The U.S. Federal Reserve on Tuesday moved forward aggressively with an effort to drive down mortgage costs, setting a goal of buying $500 billion in mortgage-backed securities by mid-2009.

The central bank said it would start buying the securities in early January under a program announced last month. When it announced the program, mortgage rates dropped in anticipation of the purchases.

Still, some analysts on Tuesday expressed surprise with how vigorously the Fed was pledging to act and the news propped up prices for MBS in very thin trade.

"When they are buying along the lines of $80 billion to $100 billion a month, if they're going to do it in six months, they have to buy everything they can get their hands on," said Kevin Cavin, a mortgage strategist at FTN Financial in Chicago.

"It will push up prices and tighten spreads and push down primary mortgage rates," he said.

The Fed selected investment managers BlackRock Inc (BLK.N), Goldman Sachs Asset Management (GS.N), PIMCO, and Wellington Management Co to implement the program.

The mortgage-buying program is part of a sustained government effort to help the United States withstand a severe credit crunch and deep housing downturn that have tipped the economy into recession and damaged activity around the globe.

Earlier this month, the Fed cut benchmark U.S. interest rates close to zero and signaled that it was turning more heavily to unconventional measures to spur the economy.

On Tuesday, it said it would increase the money supply to make the MBS purchases, effectively easing monetary policy further.

The program only covers securities issued by government-sponsored mortgage enterprises Fannie Mae and Freddie Mac and government loan financer Ginnie Mae.

When it announced the program on November 25, the Fed also said it would buy up to $100 billion in debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks, and after its meeting on interest rates on December 15-16 it said it could press even more heavily into mortgage markets.

"The goal of the program is to provide support to mortgage and housing markets and to foster improved conditions in the financial markets generally," the Fed said in a statement on Tuesday.

The central bank said it would adjust the pace of its purchases based on changing market conditions and the impact of the program. The initiative is aimed at reducing the cost of credit and increasing its availability, which authorities hope will support housing markets and foster improved financial conditions generally.

Investment managers are needed because of the size and complexity of the program, the Fed said.

Investor appetite for debt issued by Fannie Mae and Freddie Mac had dried up since the government seized control of both companies in September.

(Additional reporting by Lynn Adler in New York)

(Reporting by Mark Felsenthal; Editing by Diane Craft)


Fed to start buying mortgage-backed securities (AP)

Tuesday, December 30th, 2008 | Finance News

WASHINGTON – The Federal Reserve said Tuesday that it will begin purchasing up to $500 billion in mortgage-backed securities early next month in an effort to bolster the long-suffering housing market.

The Fed first announced that it would purchase the securities, which consist of pools of mortgages that are bundled together and sold to investors, in late November but did not say when they would begin. The central bank will buy securities guaranteed by the government-controlled home loan giants Fannie Mae, Freddie Mac and Ginnie Mae, a federal agency.

Mortgage rates have fallen to historic lows since the Fed announced the program and that has spurred a surge in home refinancings. Freddie Mac said last week that average rates on 30-year fixed-rate mortgages dropped to 5.14 percent, the lowest since the company's weekly mortgage rate survey began in April 1971.

The mortgage-related asset purchases, along with a separate Fed program unveiled last month to buy securities backed by consumer debt, have the same aim: to boost demand for those assets. In doing so, the government hopes to lower the rates being charged for consumer loans. That would make loans for everything from homes to cars more available.

The central bank said it will buy mortgage-backed securities until the end of the second quarter of 2009.

The Fed also said the risk of losses from the purchases is "minimal" because they are backed by the government-sponsored mortgage giants.

The Fed also announced that BlackRock Inc., Goldman Sachs Asset Management, Pacific Investment Management Co. and Wellington Management Company LLP will operate the program.

Federal regulators seized control of Fannie and Freddie in September as the companies faced mounting losses from the housing market's bust. Freddie has since received an injection of $13.8 billion in government aid. Fannie has yet to request any such aid but has warned it may need to do so.


Wall St gains as latest auto bailout raises hopes (Reuters)

Tuesday, December 30th, 2008 | Finance News

NEW YORK (Reuters) –
Stocks climbed on Tuesday after the government expanded its bailout of the auto industry, bolstering hopes lawmakers would continue to take steps to minimize the severity of the year-long recession.

The Bush Administration said late Monday it would extend an additional $1 billion loan to General Motors Corp (GM.N) and take a $5 billion stake in the automaker's financing arm, GMAC, in the latest move to ease the credit crisis.

"The GMAC news is the driver of the lot." said Steve Sachs director of trading at Rydex Investments, Rockville, Maryland. "The government has been telling us for months that they will do whatever it takes and there is probably more of it in store as we get to the inauguration and a few weeks past that."

The Dow Jones industrial average (.DJI) rose 184.46 points, or 2.17 percent, to 8,668.39. The Standard & Poor's 500 Index (.SPX) gained 21.21 points, or 2.44 percent, to 890.63. The Nasdaq Composite Index (.IXIC) added 40.38 points, or 2.67 percent, to 1,550.70.

The Dow is down 1.8 percent month-to-date after closing down 5.3 percent in November and 34.7 percent year-to-date. The S&P has risen almost 18 percent since hitting an 11-year low on November 20, but is still down about 40 percent for 2008.

The Nasdaq was boosted by shares of big-cap technology companies that have larger cash reserves and are seen as better positioned to withstand the economic slump.

Shares of Qualcomm Inc (QCOM.O), the wireless chip maker, rose 2.5 percent to $34.94, while software maker Oracle Corp (ORCL.O) gained 3.5 percent to $17.83, putting them among the top boosts on the Nasdaq. International Business Machines Corp (IBM.N) was the leading advancer on the Dow, rising 2.8 percent to $83.55.

Investors shrugged off another round of economic reports that pointed to a deepening recession. Prices of single-family homes plunged a record 18 percent in October, while consumer confidence also fell to a record low.

In an effort to stem the tide of the recession, U.S. lawmakers have extended aid to a slew of companies, most recently to automakers GM and privately held Chrysler LLC.

On Tuesday, GMAC announced easier financing terms for car and truck buyers and GM announced zero percent financing for some vehicles, which could help bolster sales.

Earlier this month, the government agreed to extend a $17.5 billion lifeline to GM and Chrysler in an attempt to prevent their potential collapse which could have led to hundreds of thousands of jobs lost and further weakened the economy.

GM rose 5.6 percent to $3.80, while Ford added 3.2 percent to $2.29.

Rohm & Haas (ROH.N) jumped 11.9 percent to $59.70 after the Financial Times reported Dow Chemical (DOW.N) could tap a $13 billion bridge loan or renegotiate the price to salvage its $15 billion planned takeover of the company.

The deal was jeopardized after Kuwait decided to scrap a joint venture with Dow Chemical over the weekend, depriving Dow Chemical of financing it planned to use for the acquisition. Dow rose 1.5 percent to $15.55.

Volume was slim on the New York Stock Exchange, where about 948.8 million shares changed hands, far below last year's estimated daily average of 1.90 billion. On the Nasdaq, about 1.4 billion shares traded, well below last year's daily average of 2.17 billion.

Advancers outnumbered decliners on the NYSE by a ratio of about 4 to 1, while on the Nasdaq about two stocks rose for every one that rose.

(Editing by Leslie Adler)