NEWS

Fed announces custodian for Freddie, Fannie MBS program

The US Federal Reserve has chosen J.P. Morgan to provide custodial services for its program to purchase mortgage-backed securities (MBS) from now nationalised government-sponsored enterprises, Fannie Mae, Freddie Mac and Ginnie Mae.

The program, which began on January 5, will see investment managers selected by the Fed buy up to US$500 billion of fixed-rate agency MBS issued by the three financial institutions.

Four investment managers – BlackRock Financial Management, Goldman Sachs Asset Management, PIMCO and Wellington – were chosen to implement the program, and J.P. Morgan is the only custodian.

The firms will manage 30-year, 20-year and 15-year MBS issued by the institutions.

In alignment with investment guidelines set by the Fed, the managers will use a passive buy-and-hold strategy. It is expected the assets will be acquired before the close of the second quarter.

In a statement, the Fed stated that the program aimed to “reduce the cost and increase the availability of credit for the purchase of houses” in order to support housing markets, and to help improve the state of financial markets.

The program is separate from the US Treasury’s program to buy troubled mortgage-backed assets.