Fed, FHFA Expand Investment to ‘Support Smooth Market Function’

Monday, March 23, 2020 - 12:15pm

The Federal Reserve (Fed) and Federal Housing Finance Agency (FHFA) announced policies today to address economic issues from the COVID-19 pandemic. The Fed announced that the Federal Open Market Committee (FOMC) will purchase at least $500 billion in Treasury securities and $200 billion of mortgage-backed securities to support “smooth market function.” These actions should promote greater liquidity for mortgage financing. The Fed will also expand programs to facilitate the flow of up to $300 billion in new financing to employers, consumers and businesses, as well as to provide additional credit to state and local governments. Such financing should assist corporate bonds, asset-backed securities backed by student loans, auto loans, credit card loans, Small Business Administration loans, and certain other assets, as well as expanding the Money Market Mutual Fund Liquidity Facility and Commercial Paper Funding Facility, which should promote liquidity for tax-exempt municipal bonds.

The FHFA authorized Fannie Mae and Freddie Mac to enter into additional “dollar roll transactions”, which provide mortgage-backed securities investors with short-term financing for liquidity, as well as relaxing appraisal and employment review requirements for Fannie- and Freddie-purchased mortgages.