Treasury tiptoes toward housing exit

Don’t look now, but the government is gingerly tugging at one of the smaller slats propping up the mortgage market.

Treasury said Monday it will sell a big portfolio of mortgage-backed bonds over the next year or so, in a move to wind down a crisis-era program providing financing for residential housing.

The move comes as house prices are once again headed lower — though not because loans, recently around 5% for a 30-year conforming mortgage, are expensive. So it is with government support for housing: even programs that succeed on their own modest terms, as this one did, are tarred by the feds’ failure to come up with a coherent policy objective.

“We’re continuing to wind down the emergency programs that were put in place in 2008 and 2009 to help restore market stability, and the sale of these securities is consistent with that effort,” said Mary J. Miller, assistant secretary for financial markets. “We will exit this investment at a gradual and orderly pace to maximize the recovery of taxpayer dollars and help protect the process of repair of the housing finance market.”

Under the plan, Treasury will sell $10 billion a month of its stock of agency mortgage-backed securities. These are the bonds issued by Fannie Mae and Freddie Mac to raise funds for the companies’ purchases of mortgages.

The government bought $221 billion of these bonds starting in late 2008 and running through 2009, under the Housing and Economic Recovery Act of 2008. Treasury announced its plan to buy the bonds the day the government took over Fannie and Freddie.

“The primary objectives of this portfolio will be to promote market stability, ensure mortgage availability, and protect the taxpayer,” Treasury said in its statement that day.

The portfolio is now down to $142 billion, Treasury said. The Congressional Oversight Panel that oversaw the Troubled Asset Relief Program said in its final report last week that as of last month, Treasury had received $84 billion in principal repayments and $16.7 billion in interest payments on the securities it holds as part of the program.

Obviously, government support for the housing market will hardly end with Treasury’s sale of the mortgage bonds. The Federal Reserve continues to hold $1.14 trillion of agency mortgage bonds, and Treasury has put $150 billion and counting into Fannie and Freddie, mostly to soak up losses on bubble-era mortgage guarantees.

So the government is a long way from getting out of the housing business. But it is still good to see Treasury shuffling toward the exit.

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