Fed’s Treasury Group Expands Scope to Mortgage Debt

The ""Treasury Market Practices Group"":http://www.newyorkfed.org/tmpg (TMPG), an organization created by the New York Federal Reserve to advise on the trading of Treasury bonds, announced Tuesday that it is expanding its scope to include government agency debt â€" such as that from mortgage giants Fannie Mae and Freddie Mac â€" and agency mortgage-backed securities (MBS).

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""This expansion in scope is natural for the TMPG, given the importance of the effective functioning of the Treasury, agency debt, and agency MBS markets, the extensive overlap of trading and settlement structures and investors across the markets,"" the organization said.

There is speculation that the organization's extended reach is in response to an increase in unresolved mortgage deals and secondary market trades. The number of these unsettled transactions has risen significantly within the past six months, climbing to a seven-year high, as the Federal Reserve stepped in to support the housing market.

In January of last year, the TMPG put forth procedures for penalty assessments on failed or incomplete transactions related to government debt â€" guidelines that have been endorsed by the New York Fed. TMPG said in a statement that as it assesses best practices related to trading and

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settlement of GSE debt and agency MBS, it is ""likely to consider the issues associated with settlement fails in these markets,"" as well.

_Bloomberg News_ explained that dealers have let mortgage trades go uncompleted lately because of decreased supply since the Fed's involvement and low interest rates, which reduced the economic costs of failing to make good on trades.

The news agency said failures in the Treasury market, which reached a record in October 2008, plunged following the imposition in May of a 3 percentage point penalty on uncompleted trades, as recommended by the TMPG guidelines.

Although it operates under the New York Fed umbrella, TMPG is a private-sector group composed of representatives from dealers, buy-side firms, custodians, and other Treasury market participants. In light of its expansion, the organization said its membership will likely evolve over time to also include players in the agency debt and agency MBS markets

""The TMPG will work with a broad range of market participants to support and enhance the liquidity and functioning of the agency debt and agency MBS markets,"" said Thomas Wipf, chair of the TMPG.

Brian Sack, EVP and head of the New York Fed's markets group, added, ""The New York Fed applauds the TMPG's decision to expand its scope to include the agency debt and agency MBS markets, and commends the group's progress to date. Having sound and efficient markets in Treasury debt, agency debt, and agency MBS is critical to investors and policymakers alike.""

The Federal Reserve plans to bring its purchases of GSE debt and agency MBS to a close this week, which will leave big shoes for private equity investors to fill to keep these markets â€" and the housing recovery â€" moving.