NY Fed seeking bidders for mortgage bonds

NEW YORK (Reuters) - The Federal Reserve Bank of New York will test a new strategy for getting the best price for beaten-down mortgage bonds after being approached by a potential buyer for the bonds.

Prompted by interest from the buyer, identified as Goldman Sachs Group Inc (GS.N), the New York Fed over the next week is expected to attempt to sell about $7 billion worth of securities that were acquired as part of the 2008 bailout of American International Group Inc (AIG.N).

The securities, which are backed by subprime home loans, are in a portfolio called Maiden Lane II that the NY Fed has sought to sell over time.

The effort hasn't always gone smoothly. In March, after rejecting a $15.7 billion offer from AIG for the bonds, the New York Fed said it would pursue auctions as well as sales prompted by approaches from interested buyers, known as reverse inquiries.

By May, however, disappointing economic news and a market flooded with purchases from the Fed, contributed to falling prices of mortgage bonds. The bank then said it would slow the sales of beaten-down mortgage securities.

Conditions have changed, and the securities now look attractive to buyers.

The regional Fed bank is now testing the market with a process that kicks into gear when it receives an independent offer. According to its March statement, the Fed "will also entertain inquiries to acquire specific parcels of securities where these offer superior value, though no such bid will be accepted without being put into competition with other interested investors."

Goldman recently approached the New York Fed about Maiden Lane, according to people familiar with the situation and to a report Friday in the Wall Street Journal. Representatives for Goldman and the New York Fed declined comment.

With the Goldman bid in hand, the NY Fed has sent bid lists to several major Wall Street firms so they can confidentially circulate the list of bonds to potential buyers. The hope this time around is that a Maiden Lane II sale "won't drive down the market," said a person familiar with the situation.

(Reporting by Carrick Mollenkamp of Reuters and Adam Tempkin of IFR. Additional reporting by Jonathan Spicer and Emily Flitter; Editing by James Dalgleish and Tim Dobbyn)