By Isobel Kennedy

NEW YORK (MNI) – The New York Federal Reserve said its gross
purchases of agency mortgage backed securities in the week ended
December 14 totalled $7.95 billion and, after adjusting for its dollar
roll activity, its net purchases totalled $7.55 billion.

The largest purchases in the latest week were in Fannie Mae and
Freddie Mac 30-year “to-be-announced” TBA securities with 4.00% coupons
for January delivery. Those buys totalled $3.15 billion.

The next largest purchase was $2.60 billion Fannie Mae and Freddie
Mac 30-year TBAs with 3.500% coupon for January delivery.

In the dollar roll market, the Fed sold $400 million 15-year
Freddie Mac TBAs with 3.00% coupon for December delivery and bought a
like amount of Freddie Mac 3.00% for January delivery.

This week’s dollar roll activity was very light compared to last
week’s purchases and sales, which totalled $4.35 billion.

By conducting dollar rolls, the Fed is essentially adding liquidity
to the Street to ease conditions heading into the year-end.

The New York Fed said earlier this week it expects to purchase $30
billion agency MBS in the period from December 13, 2011 to January 12,
2012.

This is up from $28 billion in the November-December 30-day period
and $22 billion in the October-November 30-day period.

The rise in expected purchases reflects the increased mortgage
prepayments in the Fed’s MBS portfolio as mortgage rates remain at
historically low levels.

Looking ahead, market experts expect the pace of prepayments to
remain steady around current levels as homeowners that have access to
credit and still have positive equity in their homes refinance at lower
rates.

The Mortgage Bankers Association’s Composite Index rose 4.1% in the
week ended December 9 but the Refinance Index jumped 9.3% in the same
week to its highest level since November 4, 2011.

Freddie Mac’s 30Y survey rate was 3.99% during that week.

The jury is still out on how HARP 2.0 will affect refinancings in
the months ahead.

The revamped program allows borrowers whose loan-to-value is above
125% to refinance if they are current on their loan.

Most analysts expect the plan to have a muted effect on prepayments
but there is always a chance it is more successful. Analysts will look
at the prepayment releases that come out in January and February for
these results.

** Market News International New York Newsroom: 212-669-6430 **

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