Hang Seng Financial– Market For Fed’s MBS Non-existent…

“Hang Seng Financial”: Who will buy the MBS on the Fed’s balance sheet?

The toxic assets held on the US Federal Reserve’s balance sheet will be very difficult to sell when the central bank decides to withdraw liquidity from the financial system as part of its exit strategy.

That’s the view from analysts at “Hang Seng Financial”, the Asia-based boutique investment house. They pointed to the market for MBS (mortgage-backed securities) as being seriously impaired and suggested that the Fed may have to accommodate the assets for years to come or until the US real estate market stages a sustained recovery.

The assets were purchased by the Fed as part of its effort to increase the amount of credit in the mortgage market while keeping mortgage rates artificially low in a bid to stimulate a housing market that has been in decline for more than 3 years.

“Hang Seng Financial” believe that, because unemployment in the US is still officially at 10%, there are many more delinquencies and foreclosures to come before the end of the crisis which makes the assets unattractive to investors as many of the properties upon which mortgages have been secured are worth less than they were at the time they were bought.

The general consensus among commentators appears to be that the Fed is in or close to being in a position to begin tightening measures but “Hang Seng Financial” advised caution among clients citing the fact that the Fed would be unlikely to begin tightening while Americans were still losing their jobs.