TARP Repayments

[ucodegen]

Great breakdown Dave. Bank TARP hasnt been a total loss for the American taxpayer. But I wonder how financing plays into the return. It wasnt free for the treasury to get those billions.

Look at the return on treasury bills vs what TARP is charging.

Treasuries were going for about 0.40% +/- on a 1 year, 0.80% +/- on a 2 year, 1.34% on a 3 year. Spread against FNM and FRE TARP would probably be about 9% on $100Bil (using 2 year +). Spread against BAC and other banks would be about 2.5%.

http://www.treas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml

[ucodegen]

With the Fed purchasing $1.25 trillion in MBS trash, is it any surprise that some of the $700 billion in TARP is being paid back?

Not so simple.. see further down on your referenced doc.

What securities are eligible for purchase under the program?
Only fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible assets for the program. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers. The program does not include CMOs, REMICs, Trust IOs/Trust POs and other mortgage derivatives or cash equivalents.

And no, FRE/FNM & Ginnie Mae are not getting off scott free:

Does the agency MBS program expose the Federal Reserve to increased risk of losses?
Assets purchased under this program are fully guaranteed as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae, so the Federal Reserve’s exposure to the credit risk of the underlying mortgages is minimal.

The real purpose here is to keep mortgage interest rates artificially low. No one wants to buy the securitization at those low rates.. so the gov is stepping in to do that. Since it ends first quarter 2010.. I suspect interest rates for mortgages will go up after Q1 2010, unless it is extended.

[ucodegen]

With the Fed purchasing $1.25 trillion in MBS trash, is it any surprise that some of the $700 billion in TARP is being paid back?

Not so simple.. see further down on your referenced doc.

What securities are eligible for purchase under the program?
Only fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible assets for the program. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers. The program does not include CMOs, REMICs, Trust IOs/Trust POs and other mortgage derivatives or cash equivalents.

And no, FRE/FNM & Ginnie Mae are not getting off scott free:

Does the agency MBS program expose the Federal Reserve to increased risk of losses?
Assets purchased under this program are fully guaranteed as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae, so the Federal Reserve’s exposure to the credit risk of the underlying mortgages is minimal.

The real purpose here is to keep mortgage interest rates artificially low. No one wants to buy the securitization at those low rates.. so the gov is stepping in to do that. Since it ends first quarter 2010.. I suspect interest rates for mortgages will go up after Q1 2010, unless it is extended.

[ucodegen]

With the Fed purchasing $1.25 trillion in MBS trash, is it any surprise that some of the $700 billion in TARP is being paid back?

Not so simple.. see further down on your referenced doc.

What securities are eligible for purchase under the program?
Only fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible assets for the program. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers. The program does not include CMOs, REMICs, Trust IOs/Trust POs and other mortgage derivatives or cash equivalents.

And no, FRE/FNM & Ginnie Mae are not getting off scott free:

Does the agency MBS program expose the Federal Reserve to increased risk of losses?
Assets purchased under this program are fully guaranteed as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae, so the Federal Reserve’s exposure to the credit risk of the underlying mortgages is minimal.

The real purpose here is to keep mortgage interest rates artificially low. No one wants to buy the securitization at those low rates.. so the gov is stepping in to do that. Since it ends first quarter 2010.. I suspect interest rates for mortgages will go up after Q1 2010, unless it is extended.

[ucodegen]

With the Fed purchasing $1.25 trillion in MBS trash, is it any surprise that some of the $700 billion in TARP is being paid back?

Not so simple.. see further down on your referenced doc.

What securities are eligible for purchase under the program?
Only fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible assets for the program. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers. The program does not include CMOs, REMICs, Trust IOs/Trust POs and other mortgage derivatives or cash equivalents.

And no, FRE/FNM & Ginnie Mae are not getting off scott free:

Does the agency MBS program expose the Federal Reserve to increased risk of losses?
Assets purchased under this program are fully guaranteed as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae, so the Federal Reserve’s exposure to the credit risk of the underlying mortgages is minimal.

The real purpose here is to keep mortgage interest rates artificially low. No one wants to buy the securitization at those low rates.. so the gov is stepping in to do that. Since it ends first quarter 2010.. I suspect interest rates for mortgages will go up after Q1 2010, unless it is extended.

[ucodegen]

With the Fed purchasing $1.25 trillion in MBS trash, is it any surprise that some of the $700 billion in TARP is being paid back?

Not so simple.. see further down on your referenced doc.

What securities are eligible for purchase under the program?
Only fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae are eligible assets for the program. The program includes, but is not limited to, 30-year, 20-year and 15-year securities of these issuers. The program does not include CMOs, REMICs, Trust IOs/Trust POs and other mortgage derivatives or cash equivalents.

And no, FRE/FNM & Ginnie Mae are not getting off scott free:

Does the agency MBS program expose the Federal Reserve to increased risk of losses?
Assets purchased under this program are fully guaranteed as to principal and interest by Fannie Mae, Freddie Mac, and Ginnie Mae, so the Federal Reserve’s exposure to the credit risk of the underlying mortgages is minimal.

The real purpose here is to keep mortgage interest rates artificially low. No one wants to buy the securitization at those low rates.. so the gov is stepping in to do that. Since it ends first quarter 2010.. I suspect interest rates for mortgages will go up after Q1 2010, unless it is extended.

[briansd1]

[quote=Adebisi]With the Fed purchasing $1.25 trillion in MBS trash, is it any surprise that some of the $700 billion in TARP is being paid back?

http://www.newyorkfed.org/markets/mbs_faq.html

Clearly the liability just got transferred from TARP to the Fed.[/quote]

Exactly.

[briansd1]

[quote=Adebisi]With the Fed purchasing $1.25 trillion in MBS trash, is it any surprise that some of the $700 billion in TARP is being paid back?

http://www.newyorkfed.org/markets/mbs_faq.html

Clearly the liability just got transferred from TARP to the Fed.[/quote]

Exactly.

[briansd1]

[quote=Adebisi]With the Fed purchasing $1.25 trillion in MBS trash, is it any surprise that some of the $700 billion in TARP is being paid back?

http://www.newyorkfed.org/markets/mbs_faq.html

Clearly the liability just got transferred from TARP to the Fed.[/quote]

Exactly.

[briansd1]

[quote=Adebisi]With the Fed purchasing $1.25 trillion in MBS trash, is it any surprise that some of the $700 billion in TARP is being paid back?

http://www.newyorkfed.org/markets/mbs_faq.html

Clearly the liability just got transferred from TARP to the Fed.[/quote]

Exactly.

[briansd1]

[quote=Adebisi]With the Fed purchasing $1.25 trillion in MBS trash, is it any surprise that some of the $700 billion in TARP is being paid back?

http://www.newyorkfed.org/markets/mbs_faq.html

Clearly the liability just got transferred from TARP to the Fed.[/quote]

Exactly.

[bubba99]

The banks are still writing off bad loans where they must. GAAP has abandoned reason by abandoning mark to market accting, but the banks must still take principal losses on disposed of (reposessed) assets. Check current write offs and reserves for future write offs and you can see where the “profitbility” is going. Without the cheap money, the banks would still be insolvent.

If Mark to market accting was still required (or the off balance sheet vehicles) were required to be included, most banks would be in receivership

[bubba99]

The banks are still writing off bad loans where they must. GAAP has abandoned reason by abandoning mark to market accting, but the banks must still take principal losses on disposed of (reposessed) assets. Check current write offs and reserves for future write offs and you can see where the “profitbility” is going. Without the cheap money, the banks would still be insolvent.

If Mark to market accting was still required (or the off balance sheet vehicles) were required to be included, most banks would be in receivership

[bubba99]

The banks are still writing off bad loans where they must. GAAP has abandoned reason by abandoning mark to market accting, but the banks must still take principal losses on disposed of (reposessed) assets. Check current write offs and reserves for future write offs and you can see where the “profitbility” is going. Without the cheap money, the banks would still be insolvent.

If Mark to market accting was still required (or the off balance sheet vehicles) were required to be included, most banks would be in receivership

[bubba99]

The banks are still writing off bad loans where they must. GAAP has abandoned reason by abandoning mark to market accting, but the banks must still take principal losses on disposed of (reposessed) assets. Check current write offs and reserves for future write offs and you can see where the “profitbility” is going. Without the cheap money, the banks would still be insolvent.

If Mark to market accting was still required (or the off balance sheet vehicles) were required to be included, most banks would be in receivership

[Author]

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