By Al Yoon
WASHINGTON Feb 1 The $5 trillion market for U.S. agency mortgage-backed securities should be able to weather the scheduled end of Federal Reserve purchases as value-seeking investors fill the void, a Freddie Mac executive said on Monday.
Those investors could include Freddie Mac, which has room to increase its $755 billion portfolio, Mike Dawson, a vice president of deal and contract management at Freddie Mac, told reporters at an American Securitization Forum conference.
"I don't see huge changes out there other than a little spread widening," he said, referring to yields on MBS relative to benchmark securities. The spread affects rates that lenders offer to consumers who are trying to snap back from the economic recession and housing slump.
Agency MBS, which hold effective guarantee by the U.S. government, will continue to be attractive to investors who are able to fund holdings of the assets cheaply in the so-called "carry trade," he said. The level of support is critical amid concern that mortgage bond rates -- and thus consumer mortgage rates -- would rise as the Fed's $1.25 trillion in market-supporting purchases are completed by March.
Freddie Mac has always supported the mortgage bonds it issues, Dawson said, adding that a recent announcement by the Obama administration could enhance the company's efforts. In that move, the U.S. eliminated its demand that Freddie Mac and Fannie Mae begin to cut their mortgage investments this year.
Under the new rules, mortgage investments held by Freddie Mac and Fannie Mae, the largest providers of U.S. home loan funding, can be $810 billion each at the end of this year.
"It does give us some powder to work with," Dawson said.
(Additional reporting by Julie Haviv; Editing by Diane Craft)