U.S. Treasury Turning Profit on Troubled Assets

The U.S. Treasury took on the role of bailing out financial institutions that had made bad investments in mortgage-backed securities (MBS) by buying those assets with taxpayer dollars. …

The U.S. Treasury took on the role of bailing out financial institutions that had made bad investments in mortgage-backed securities (MBS) by buying those assets with taxpayer dollars. Now it appears that the Treasury has been seeing earnings on these buys as it continues to liquidate its portfolio of MBS on the open market. The original investment of $225 billion has seen a return on investment of 65% and there are assets remaining for sale in the portfolio just below $100 billion, which suggests that a real profit for taxpayers will be realized. For more on this continue reading the following article from The Street.

The U.S. Treasury Department said Thursday that it expects to make a profit for taxpayers as it winds down its $225 billion investment in agency-guaranteed mortgage -backed securities (MBS), based on current market conditions.

According to its latest update, taxpayers have received cumulative total of $146.9 billion from Treasury’s MBS portfolio, including $35 billion in sales proceeds and $111.9 billion in principal and interest payments. That represents about 65% of the Treasury’s original investment.

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The remaining amount of principal outstanding in Treasury’s MBS portfolio is now under $100 billion, according to the report.

"Taxpayers may ultimately receive proceeds in excess of principal through interest payments and sales above face value," the Treasury said in its report, noting that the market for mortgage backed securities had considerably improved since the time it made its investment.

In 2008 and 2009, the Treasury began purchasing the securities in a bid to provide stability to the financial market and prevent disruption in mortgage lending activity.

In March 2011, it announced that it would begin selling its massive MBS holdings in a measured rate of $10 billion a month, depending upon market conditions. It estimated that it would be able to wind down its portfolio over a year, subject to prepayment rates. The process could take longer if it decides to suspend the sales if market conditions turn less favorable, the Treasury said.

This article was republished with permission from The Street.

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