New York Fed Bringing Agency MBS Buying Program In-House

The New York Federal Reserve is gradually moving its agency mortgage purchase program inhouse, taking some operations out of the hands of external investment managers.

Starting late November, the bank will use its own staff "on select days" to carry out agency mortgage-backed securities purchases with the remainder of the $1.25 trillion special program initiated in January. In a press release posted on its Web site late Wednesday, the N.Y. Fed said the move is a natural progression as its inhouse expertise has grown, reducing its reliance on outsourcing.

In August, the Fed cut the number of external managers it uses on the program from four to two. It retained Wellington Management Company, LLP for trading, settlement and as a secondary provider of risk and analytics support; and BlackRock Inc. (BLK) as the primary provider of risk and analytics support. The program custodian is J.P. Morgan Chase & Co. (JPM).

"The change in the number of external investment managers was not performance related," the press release noted. "The New York Fed is committed to implementing its programs in the most efficient and cost-effective manner possible."

The bank will continue using outside investment managers, but the trading days on which its own staff conducts purchases will gradually increase over the remainder of the program, the Fed said.

The agency MBS-buying program, which is set to expire March 2010, targets fixed-rate agency MBS securities guaranteed by Fannie Mae (FNM), Freddie Mac (FRE) and Ginnie Mae.

For more information, see: http://www.newyorkfed.org/markets/mbs_FAQ.HTML

-By Emily Barrett, Dow Jones Newswires; 212-416-2205; emily.barrett@dowjones.com