Morgages: US Treasury may sell its mortgage-backed securities

In a statement issued yesterday, the US Treasury said "Today, the U.S. Department of the Treasury announced that it will begin the orderly wind down of its remaining portfolio of USD142,000 million in agency-guaranteed mortgage-backed securities (MBS). Starting this month, Treasury plans to sell up to USD10,000 million in agency-guaranteed MBS per month."

But then it added a caveat; "subject to market conditions."

Those market conditions are, the Treasury admits (in a sideways comment) not within its control: “We’re continuing to wind down the emergency programmes that were put in place in 2008 and 2009 to help restore market stability, and the sale of these securities is consistent with that effort,” said Mary J. Miller, Assistant Secretary for Financial Markets. “We will exit this investment at a gradual and orderly pace to maximise the recovery of taxpayer dollars and help protect the process of repair of the housing finance market.”

The Treasury acquired its portfolio of agency-guaranteed MBS under authority given to it by Congress under the Housing and Economic Recovery Act of 2008. It says that these purchases of agency-guaranteed MBS helped preserve access to mortgage credit and promote economic stability during a period of unprecedented market stress and volatility.
The Treasury reckons that "the market for agency-guaranteed MBS has notably improved since the time Treasury purchased these securities in 2008 and 2009. Based on current market prices, Treasury expects to make a profit for taxpayers on this investment. The sale of these securities will not alter our previously stated debt management objectives, nor change the path on which we intend to achieve those objectives."

So far, the US Treasury has done well out of assets it took over as part of its rescue of the financial sector and the wider industrial sector: on 3 October, 2010, new Troubled Asset Relief Program (TARP) purchasing authority expired. The Treasury is moving to get out of its remaining TARP investments in private companies. In December 2010, the Treasury sold its final share of Citigroup common stock, locking in a profit of more than USD12,000 million on that TARP investment. General Motors’ (GM) recent initial public offering cut Treasury’s common stock stake in that company nearly in half and brought in a total of USD13,500 million for taxpayers.

In addition, the Treasury recently received USD9,600 million in TARP repayments through the sale of its Ally Financial trust preferred securities holdings and AIG’s sale of its MetLife equity stake.

But that's still a tiny fraction of the money injected into the economy to try to stave off total meltdown and there is no news as to unrecoverable losses.