Fed Bolsters Efforts to Stem Economic Impact of Coronavirus
The Federal Reserve, in its most aggressive actions to date, announced further steps yesterday to mitigate the economic impact of the coronavirus pandemic, including actions strongly advocated for over the weekend by the Mortgage Bankers Association.
The Federal Open Market Committee issued a statement (https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323a.htm) announcing extraordinary new measures to support the economy. This included a commitment to continue its asset purchase program of mortgage-backed securities and Treasury securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions.”
“The Federal Reserve is committed to use its full range of tools to support the U.S. economy in this challenging time and thereby promote its maximum employment and price stability goals,” The FOMC said.
The measures would include purchases of agency commercial mortgage-backed securities in its agency mortgage-backed security purchases. In addition, the Open Market Desk would continue to offer large-scale overnight and term repurchase agreement operations.
“The Committee will continue to closely monitor market conditions, and will assess the appropriate pace of its securities purchases at future meetings,” The FOMC said.
MBA welcomed the announcement. In a statement, MBA President and CEO Robert Broeksmit, CMB, commended the Fed for its aggressive actions.
“MBA applauds the Fed for announcing its intent to increase the scale and scope of its purchase of agency MBS and agency commercial MBS,” 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 that have been slowed due to unprecedented market volatility.”
Broeksmit said MBA looks forward to continuing to work with all policymakers and stakeholders, including Congress and the administration, to help consumers, lenders and mortgage servicers. “A critically important program will be to provide support to impacted homeowners through forbearance,” he 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.”
On Sunday, MBA asked the Treasury Department and the Federal Reserve to take immediate further actions ensure orderly functioning of the housing finance market in response to the “extreme volatility” in financial markets arising from the spread of the coronavirus.
The Mar. 22 letter said further action by Treasury and the Federal Reserve is needed to “ensure the orderly functioning” of the housing finance market. Specifically, Treasury and the Federal Reserve should:
–Increase the scale and scope of agency mortgage-backed securities asset purchase operations; and
–Develop a liquidity facility to support the mortgage servicing sector in anticipation of widespread borrower payment forbearance.
“We believe these actions should be taken as urgently and swiftly as possible to counter volatility in the market, protect consumers and ensure all market participants that the liquidity strains being caused by COVID-19 do not escalate into solvency problems throughout financial markets,” Broeksmit wrote.
The FOMC had previously announced it would purchase at least $500 billion of Treasury securities and at least $200 billion of mortgage-backed securities. Other actions include:
–Supporting the flow of credit to employers, consumers and businesses by establishing new programs that, taken together, will provide up to $300 billion in new financing. The Department of the Treasury, using the Exchange Stabilization Fund, will provide $30 billion in equity to these facilities.
–Establishment of two facilities to support credit to large employers – the Primary Market Corporate Credit Facility (PMCCF) for new bond and loan issuance and the Secondary Market Corporate Credit Facility (SMCCF) to provide liquidity for outstanding corporate bonds.
–Establishment of a third facility, the Term Asset-Backed Securities Loan Facility (TALF), to support the flow of credit to consumers and businesses. The TALF will enable issuance of asset-backed securities backed by student loans, auto loans, credit card loans, loans guaranteed by the Small Business Administration and certain other assets.
–Facilitating the flow of credit to municipalities by expanding the Money Market Mutual Fund Liquidity Facility (MMLF) to include a wider range of securities, including municipal variable rate demand notes (VRDNs) and bank certificates of deposit.
–Facilitating the flow of credit to municipalities by expanding the Commercial Paper Funding Facility (CPFF) to include high-quality, tax-exempt commercial paper as eligible securities. In addition, the pricing of the facility has been reduced.
In addition, the Federal Reserve expects to announce soon establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses, complementing efforts by the SBA.