The following is intended to address operational questions about the program announced by the Federal Reserve on November 25, 2008 to purchase the direct obligations of housing-related government-sponsored enterprises (GSEs) Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

Effective December 3, 2008

What is the policy objective of the Federal Reserve's program to purchase direct obligations of the housing-related GSEs?
The goal of these debt purchases, combined with the purchases of mortgage-backed securities (MBS) backed by Fannie Mae, Freddie Mac and Ginnie Mae announced on November 25, 2008, is to reduce the cost and increase the availability of credit for the purchase of houses. Purchases of GSE direct obligations are intended to lower the spreads between rates on GSE direct obligations and U.S. Treasury debt, which have widened recently.

What type of GSE direct obligations will the Federal Reserve purchase under the program?
At the beginning of the program, purchases will focus on fixed-rate, non-callable senior benchmark securities issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Over the course of the program, the Federal Reserve may change the scope of purchasable securities.

Who is eligible to sell GSE direct obligations to the Federal Reserve under the program?
Primary dealers are eligible to transact directly with the Federal Reserve and are encouraged to submit offers for themselves and their customers.

How long will the program be in place?
The program to purchase up to $100 billion in GSE direct obligations will be in place for the next several quarters, subject to conditions in the market for such securities.

Will these operations be reserve neutral?
No, these operations will be financed through the creation of additional bank reserves.

Will the Federal Reserve Bank of New York lend GSE direct obligations purchased as a result of the program?
Initially, GSE direct obligations held by the System Open Market Account (SOMA) will not be available to be borrowed through the SOMA's daily securities lending program. The New York Fed may include GSE direct obligations in the SOMA's daily securities lending program at a later date.

How will the auctions be conducted?
Auctions will be conducted via FedTrade. Awards will be based on a multiple-price competitive auction process.

How often will the New York Fed conduct auctions to purchase GSE direct obligations?
On average, purchases of GSE direct obligations will occur about once per week, subject to market conditions and holiday schedules. The New York Fed will publicly announce each auction on its website one business day prior to the auction.

How will the New York Fed determine which issues will be included in the auctions?
The New York Fed will consult market participants and solicit available inventory from primary dealers in order to determine the list of securities to be included in each auction.

When will the New York Fed announce the auctions?
The New York Fed will post the time and date of the auction and the list of securities to be included in the auction one business day in advance.

How will dealers submit their offers in the auction?
Primary dealers will submit their offers via FedTrade once the auction has been opened, or approximately 30 minutes prior to the announced close time. The auctions will normally last 30 minutes and may be shortened or extended, at the discretion of the New York Fed.

How many offers can a dealer submit during an auction?
Dealers are limited to three propositions per issue.

What is the minimum amount for which a dealer may submit offers?
The minimum offer size is $1 million, with a minimum increment of $1 million.

How will the New York Fed communicate the auction results?
Auction results will be posted on the New York Fed website following each auction. The announcement will include the offers received, offers accepted, and amount purchased per issue.

In addition, individual auction results, including accepted offers, will be made available via FedTrade to the participating primary dealers. Similar to other outright operations conducted by the New York Fed, pricing information related to transactions will not be disclosed publicly.

Whom do dealers call if they experience difficulties during the auction?
Primary dealers may call the New York Fed Trading Desk with submission and verification questions. For system related problems, dealers may call New York Fed Primary Dealer Support at 877-376-9837.

When and how does settlement take place?
Securities settlement will occur on a T+1 basis, i.e. one business day after the day of the auction, via the Fedwire Securities system.