The Federal Reserve took assertive action recently, announcing additional upcoming measures to be implemented in an effort to mitigate the negative economic effect of the COVID-19 outbreak. These actions include several of those recently proposed by the Mortgage Bankers Association (MBA).
The Federal Open Market Committee (FOMC) released an official statement detailing sweeping new measures aimed at supporting the turbulent economic market. The committee voiced its continued commitment to maintaining its asset purchase initiative of mortgage-backed and Treasury securities in the requisite thresholds to sustain efficient market functionality and adequate transaction of monetary policy to more extensive financial conditions. The FOMC also reiterated its intention to utilize its full range of capabilities to buttress the United States economy amid the ongoing crisis, in order to maximize employment and stabilize prices.
The pending measures would involve purchasing agency commercial mortgage-backed securities (“MBS”) in the FOMC mortgage-backed security transactions. Additionally, the Open Market Desk would maintain its offering of large-scale overnight and term repurchase agreement practices. The FOMC will also continue to keep a close eye on market conditions and periodically reevaluate the rate of its securities acquisitions.
MBA President and CEO Robert Broeksmit, CMB, was receptive of the FOMC’s statement, commending the Federal Reserve leadership for its proactive approach to the situation. Broeksmit noted that the Fed’s increased scale and scope of its purchasing of agency MBS and agency commercial MBS will offer customers protection by stabilizing mortgage rates for home buying, as well as assisting property owners in refinancing their loans and supporting multifamily real estate sectors.
Broeksmit stated that the MBA is looking forward to continuing collaboration with all policy influencers and stakeholders, to include Congress, and to assist customers, lending entities, and mortgage providers. He also highlighted that an essential component of these efforts will be to provide support to affected property owners via forbearance, as liquidity is needed for the residential mortgage servicing market. This liquidity can be sourced from a Ginnie Mae program and the formation of a dedicated Federal Reserve liquidity site.
The MBA had requested, via a March 22nd correspondence addressed to the FOMC, that both the Treasury Department and the Federal Reserve take immediate additional actions to ensure smooth operations of the housing finance market in light of the marked volatility in financial markets triggered by the rapid spread of the current pandemic. Specifically, the MBA called for the Treasury and the Federal Reserve to take the following actions:
- Enhance the scale and scope of agency mortgage-backed securities asset purchases; and
- Form a liquidity facility to strengthen the mortgage servicing market in case of potential increases in borrower payment forbearances
The FOMC had issued a previous announcement stating that it would buy a minimum of $500 billion in Treasury securities and $200 billion in mortgage-backed securities. Additional FOMC measures include:
- Facilitating the extension of credit to employers, consumers, and business entities by creating new initiatives that, collectively, offer $300 billion in new financing. The department of the Treasury, by way of the Exchange Stabilization Fund, will route $30 billion in equity to these facilities.
- Creating two facilities to support credit to major employers. These facilities are (1) The Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance; and (2) The Secondary Market Corporate Credit Facility (SMCCF) to offer liquidity for outstanding corporate bonds;
- Creating a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to strengthen credit flow to consumers and business entities. The TALF will allow issuance of asset-backed securities backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration;
- Managing the credit flow to municipalities by expanding both the Commercial Paper Funding Facility (CPFF) to include a high quality, tax-exempt commercial paper as eligible securities, and the Money Market Mutual Fund Liquidity Facility (MMLF) to encompass a broader variety of securities, including municipal variable rate demand notes (VDRNs) and bank certificates of deposit.
Additionally, the Federal Reserve plans to announce the creation of a Main Street Business lending program to facilitate loans to qualifying small-and-medium businesses in support of SBA efforts.
For private lenders, there will be a wait-and-see approach about what effect this will have for the private lender marketplace. The big unknown is whether there is any fed appetite to purchase private CMBS and RMBS, or whether purchases will strictly be related to agency debt.
