Fannie,Freddie should sell agency MBS holdings-PIMCO

NEW YORK, June 28 (Reuters) - Mortgage giants Fannie Mae and Freddie Mac should start taking profits on some of the mortgage-backed securities they guarantee and hold in their portfolios, according to Pacific Investment Management Co.

Nearly three months have passed since the Federal Reserve stopped buying agency MBS, yet the securities have remained at historically rich price levels.

The New York Federal Reserve said on Monday it plans to swap unsettled Fannie Mae 30-year 5.50 percent coupons, which are also limited in supply, for other agency MBS that are more readily available for settlement. The 30-year 5.50 percent coupon sharply underperformed lower coupons on Monday, ending unchanged at 107-18/32, while other issues gained in price.

"The 30-year 5.50 percent coupons are insanely expensive," Scott Simon, head of mortgage and asset-backed securities at Pimco, manager of the world's biggest fixed-income fund, said in an interview with Reuters. "If they (Fannie and Freddie) could make the most money selling agency MBS, they should."

The global financial turmoil has benefited not only U.S. Treasury securities, but also agency MBS as foreign and domestic buyers have sought the relatively safe-haven investments.

But Simon also said prices on the MBS are too rich for his taste.

"Even if this coupon cheapened a full point, I would still not like them and we are not even close to levels where I would consider buying them," he said.

Lower coupons are also trading at historically rich levels and are priced significantly above par.

"We have to assume that somebody must have been telling them not to sell," Simon said. "They are not supposed to be running a business where they lose money holding on to their positions."

In September 2008, the U.S. government seized control of Fannie Mae and its smaller sibling, Freddie Mac, amid heightened worries about shrinking capital at the congressionally chartered companies.

Under this conservatorship they have received $145 billion of capital injections. The government has directed each of them need to keep their portfolios below $900 billion.

"I am paying enough taxes as it is," Simon said. "So, if they are going to lose money going forward, selling some agency MBS holdings at these ridiculously high prices is the right thing to do," he said. (Editing by Dan Grebler)