The Federal Reserve announced yesterday that its agency mortgage-backed securities (MBS) purchase program is expected to begin in early January and released additional details related to the program. First announced on November 25, 2008, the program will involve the purchase of up to $500 billion of “eligible assets” defined as “fixed-rate agency MBS securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae.” Eligible assets include, but are not limited to, 30-year, 20-year and 15-year securities but do not include CMOs, REMICs, Trust IOs/Trust POs or other mortgage derivatives or cash equivalents.

The stated goal for the program is “to provide support to mortgage and housing markets and to foster improved conditions in financial markets more generally.” Four investment managers selected by the Federal Reserve—BlackRock Inc., Goldman Sachs Asset Management, PIMCO and Wellington Management Company, LLP—will conduct the transactions “with primary dealers who are eligible to transact directly with the Federal Reserve Bank of New York.” The release stated that the purchases of the agency MBS in the open market are permitted under Section 14(b) of the Federal Reserve Act.