Fed Underwater On MBS Purchases

The U.S. Federal Reserve's plan to buy up mortgage-backed securities (MBS) has proven to be a high-ticket project. According to a recent _""Wall Street Journal"":http://www.wsjonline.com_ report, which cited analysis by ""JP Morgan Chase"":http://www.jpmorganchase.com, the Fed is underwater on its MBS portfolio by about one percent, and it would have to take approximately $5 billion in losses if it were to mark its portfolio to the market.
The central bank has committed to buy $1.25 trillion in mortgage securities from government agencies this year. Its purchases currently stand at an estimated $557 billion.
This week, the Fed's net ""MBS purchases"":http://www.newyorkfed.org/markets/mbs/ were $23 billion. The gross amount totaled $54.68 billion. The Fed bought $40.69 billion in mortgage securities from Fannie Mae, $12.35 billion from Freddie Mac, and $1.63 billion from Ginnie Mae.
The central banks' expanded debt purchases are intended to improve market conditions for home purchases by lowering mortgage rates. The Fed's efforts had sent rates for home loans plummeting well below the five percent mark - that is, until last week, and ""long-term rates"":http://dsnews.comindex.php/home/news_story/3086 are now inching close to six percent.
According to JP Morgan's research, the Federal Reserve has acquired the majority of securities sold in 2009, with interest payments ranging from four to five percent. JP Morgan estimates that the Fed's purchases have enabled about two million homeowners to refinance who otherwise would not have been able to, and even with rates heading upward, a large number of borrowers can still realize savings by taking advantage of rates lower than when they purchased their home.