Fed Increases Spending On Mortgage-Backed Securities
In its latest attempt to help the economy weather the coronavirus storm, the Federal Reserve on Monday announced it would spend more on mortgage-backed securities in the coming weeks.
The Fed’s Federal Open Market Committee will purchase Treasury securities and mortgage-backed securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions and the economy.”
The FOMC had previously announced it would purchase at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities. The FOMC also will include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases.
“The Federal Reserve’s role is guided by its mandate from Congress to promote maximum employment and stable prices, along with its responsibilities to promote the stability of the financial system,” the Fed said in a statement. “In support of these goals, the Federal Reserve is using its full range of authorities to provide powerful support for the flow of credit to American families and businesses.”
Also Monday, the Fed announced plans to support the flow credit to employers, consumers, businesses, and cities and towns. Read details here.
The Mortgage Bankers Association (MBA) praised the move by the Fed.
“MBA applauds the Fed for announcing its intent to increase the scale and scope of its purchase of agency MBS and agency commercial MBS,” MBA President and CEO Bob Broeksmit said. “This will not only protect consumers by stabilizing mortgage rates for home purchases, but it will also help homeowners to refinance their loans and support multifamily real estate markets. Both are powerful forms of stimulus for the economy, which have been slowed due to unprecedented market volatility.”
A day earlier, the MBA had asked the Fed and the Treasury Department to take additional emergency steps to ensure money is available to lenders at a time when borrowers may be slow to make their mortgage payments amid the COVID-19 pandemic.
In addition to calling for increasing the scope of mortgage-backed securities, the MBA seeks the development of a facility to support mortgage lenders in anticipation of widespread delays in payments from property owners. The MBA reiterated that Monday morning.
“A critically important program will be to provide support to impacted homeowners through forbearance,” Broeksmit said. “In order for this to succeed, liquidity is required for the residential mortgage servicing sector, which can come from a Ginnie Mae program and the creation of a dedicated Federal Reserve liquidity facility.”