By Greg Robb, MarketWatch
WASHINGTON (MarketWatch) — The Treasury Department said Monday that it will begin to sell its portfolio of $142 billion in agency-guaranteed mortgage-backed securities amassed during the financial crisis.
A senior Treasury official said the department plans to sell up to $10 billion in MBS securities per month subject to market conditions. The sales will start this month.
“We’re continuing to wind down the emergency programs that were put in place in 2008 and 2009 to help restore market stability and the sales of these securities is consistent with that effort,” said Mary Miller, Treasury assistant secretary for financial markets.
The sales could generate a profit for taxpayers of about $15 billion to $20 billion as market conditions have improved, the official said.
In the summer of 2008, Congress gave Treasury the power to purchase the securities guaranteed by Fannie Mae (FNMA 0.40, +0.04, +11.27%) and Freddie Mac (FMCC 0.39, +0.03, +8.27%) to provide stability to financial markets. Treasury used the authority between October 2008 and December 2009.
Big U.S. banks like Citigroup Inc. (C 4.46, -0.04, -0.89%) , JP Morgan Chase & Co (JPM 45.70, -0.04, -0.09%) and Wells Fargo & Co (WFC 31.85, +0.02, +0.06%) had packaged mortgages and sold them to international investors. But the market ground to a halt during the credit crunch as home prices fell and investors fled the opaque market.
The Federal Reserve also stepped in and purchased over a trillion dollars of housing-related debt, including MBS.
The Fed currently holds just under $945 billion of MBS on its balance sheet.
The Treasury Department said the sales helped stabilize the mortgage market during a period of unprecedented market volatility and illiquidity.
Miller said the sales would be gradual to “help protect the process of repair of the housing finance market.”
Stone and McCarthy analyst Nancy Vanden Houten said nearly two-thirds of Treasury’s holdings are in 30-year MBS with 4.5% and 5% coupons.
The official said the sales were not related to the looming debt ceiling violation. Treasury has estimated that it could hit the debt ceiling as early as April 15.
Vadnen Houten said the sales would give Treasury “a little more wiggle room under the debt ceiling.”
Alan Ruskin, global head of G-10 FX strategy at Deutsche Bank, said he did not think the Treasury sales would impact the Fed’s timing of its exit strategy.
Fed watchers don’t think the central bank will sell any MBS until after it starts hiking interest rates. At the moment, economists expect these hikes to begin next year.
