The Federal Reserve on Thursday shuffled some details around certain liquidity programs, extending the deadlines for a number of facilities through early 2010 in an effort to "promote financial stability and support the flow of credit to households and businesses" as the extent of the contraction continues to unwind.

"Conditions in financial markets have improved in recent months, but market functioning in many areas remains impaired and seems likely to be strained for some time," Fed officials said in a media statement.

The Term Asset-Backed Securities Loan Facility (TALF) kept its Dec. 31, 2009 deadline, however, and the Fed's announcement was quiet on that particular program.

The Term Auction Facility (TAF), which has no deadline, saw its biweekly funds reduce from $150bn to $125bn as  part of the modification actions. Wholesale funding markets have improved in recent months, and amounts bid at TAF auctions has declined as a result, necessitating an easing back on the program funding, the Fed said.

While the Fed prepared to extend and modify some liquidity programs, the Federal Reserve Bank of New York continued with its agency mortgage-backed securities (MBS) purchases. The NY Fed bought up $23.75bn of MBS in the week ending June 24: $8.8bn from Freddie Mac (FRE: 0.00 N/A), $11.4bn from Fannie Mae (FNM: 0.00 N/A) and $3.55bn from Ginnie Mae.

The weekly purchases favored 30-year MBs with 4.5% coupons. Of its $15.2bn purchases of this product, $4.6bn settles on its balance sheet in July and the remaining $10.6bn settles in August.

As an ongoing part of the Fed’s participation in the so-called “dollar roll” market — a purchase agreement where the seller traditionally sells the security now under an agreement to buy it back in the future at a lower price — the NY Fed noted $1.5bn of MBS sales in the same week: $400m of 40-year 4.5s, $1bn of 30-year 5s and $100m of 15-year 4s, all of which settles in June.

The purchases and sales, although constantly rolling on and off the Fed's books, have made a lasting mark on the central bank's balance sheet, which shows a $58.52bn decline in the week ending June 24, to a total $1.99trn. The balance sheet might be down from last week, but it's up $1.12trn from the year-ago week ending June 25, 2008.

The hike from last year's balance reflects the tremendous liquidity efforts out of the Fed, with MBS held outright contributing $467.11bn to the total.

Write to Diana Golobay.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

[Update 1]

Global investment management company Invesco (IVZ: 22.99 +0.92%) along with real estate investment trust (REIT) Invesco Mortgage Capital (IVR: 15.81 -0.25%) today released its pricing of an initial offering of 8.5m shares of Invesco Mortgage at $20 per share as it prepares for its first day of trading.

Invesco Mortgage left underwriters the option to purchase an additional 1.27m common shares to cover any over-allotments — an option that expires after 30 days. In addition the the public offering, the compnay will place 75,000 shares of common stock at $20 per share with its manager and 1.42m limited partner units of its IAS Operating Partnership subsidiary at $20 per unit with a subsidiary of parent company Invesco.

Invesco Mortgage's shares begin trading today on the New York Stock Exchange under the ticker symbol "IVR." It sold at $19.46 in late-morning trading, slightly below its offering price after this story went to press.

The public offering represents the latest in a series of moves by US REITs to attract public capital over more traditional, private funds. The offerings and placements together will yield an estimated $195.5m in net proceeds after deducting underwriting discounts and assume the underwriters' over-allotment option is not exercised.

Invesco announced plans for the public offering in early May. Its Invesco Mortgage, a newly formed REIT, was set up with a goal to invest in agency and non-agency RMBS, CMBS and mortgage loans in concert with government funding through the Public-Private Investment Program and the Term Asset-Backed Securities Lending Facility.

Write to Diana Golobay.

Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments.

The Government National Mortgage Association — or Ginnie Mae — posted $38.98bn in mortgage-backed securities issuance in May, bringing the 2009 total so far to $163bn, more than double the nearly $80bn seen in the first five months of 2008.

"Our MBS program is continuing to experience phenomenal growth," said president Joseph Murin in a statement this week. "Clearly, as the economy continues to find its footing, there is still a strong need for a safe, dependable security like the Ginnie Mae MBS."

Multifamily MBS issuance accounted for $319m of the month's total, while the rest consisted of single-family issuance. By taking loan pools and securitizing on the secondary market, Ginnie provides liquidity for mortgage lenders and, in turn, small mortgage bankers that sell loans to big lenders.

With the full faith and credit of the US government, Ginnie is in the position of taking on loans guaranteed by the Federal Housing Administration, the Department of Veteran Affairs, the Department of Agriculture's Rural Development and Department of Housing, as well as the US Department of Housing and Urban Development's Office of Public and Indian Housing.

Ginnie also participates in the Federal Reserve's MBS purchase program as an ongoing part of the Fed’s role in the so-called “dollar roll” market — a purchase agreement where the seller traditionally sells the security now under an agreement to buy it back in the future at a lower price. The Fed purchased $3.65bn of MBS from Ginnie in the most recent week of transactions, providing a bit of liquidity for other issuance.

Write to Diana Golobay.

If, as one panel member's testimony supposes, consumer regulation and financial product safety regulation are two distinct sides of the same coin, then the House Committee on Financial Services flipped the coin over on Wednesday to study both sides.

A hearing on regulatory restructuring and, specifically, enhancing consumer financial products regulation featured testimony from both sides of the coin: the side for a separate regulatory entity charged with overseeing more responsible, accountable and transparent financial products for consumers, and the side against complicating an already complex regulatory framework.

The hearing participants largely agreed on the importance of safe and transparent financial products for consumers, but the hot discussion subject of the day — a separate regulatory body proposed by the administration — generated plenty of divergence in viewpoints, beginning with Congressman Bill Delahunt, who helped work on the proposal for a Financial Product Safety Commission.

Delahunt said the commission's role would be to reduce consumer risk and enforce more honest and transparent lending practices.

"Like with other products that are crucial to a healthy life like food and medicine, consumers shouldn't have to worry whether they are being fooled or tricked into buying a subpar product," he said, according to prepared remarks. "By alleviating Americans of this burden, we can help consumers again borrow with confidence, secure in the government's ability to protect them from fraudulent, unsafe products."

But neutering out all the risk — and, possibly, choice — from financial products is not the job of the government, according to Elizabeth Warren, a Harvard law professor and the chair of the Congressional Oversight Panel. Instead, she called for a change in risk-taking behaviors among the consumers themselves.

"The need for personal responsibility is as strong as ever," she said. "If someone goes to the mall and charges thousands of dollars to buy things they can’t afford, they should have to deal with the consequences. And if someone signs on to buy a five-bedroom home with a spa bath and a media room that they can’t afford, they should lose it."

On the regulatory side, Warren argued the credit market itself is broken and in need of an overhaul. She proposed a Consumer Finance Protection Agency to reduce systemic risk in the credit system, reduce regulatory burdens by consolidating some financial regulation powers, foster innovation and level the playing field by "putting someone on the consumer's side."

The way the system used to work was much simpler than today, according to Warren's prepared remarks. Consumers could shop around for goods and services and pick the best prices and offerings, and lenders would shop around for the right creditworthiness of potential borrowers. The system broke somewhere along the rush to make larger profits, as lenders offered riskier and more convoluted loans, the terms of which consumers couldn't understand even if they did wish to shop around, she said.

To top it off, Warren said, complicated regulations in effect allow for — and even encourage — these products, and bad products in the hands of ill-prepared consumers only makes things worse. The issue at stake is not just what the product will do to the consumer's credit, finances and personal life when it explodes. It's about the systemic repercussions felt throughout the economy when the whole minefield goes off.

Leveling the playing field to a more transparent set of operations is the only way to avoid this systemic flaw, according to Warren.

"The invisible hand of the market works well only when buyers and sellers both have full information about the value of the items they exchange," she said.

On the flip side, however, another hearing participant argued the case for better regulation of the lending institutions themselves, not the products they offer. Edward Yingling, president and CEO of the American Bankers Association said there are plenty of consumer protection laws already in place, but consolidating the regulatory authority into one entity will simply complicate an already complex financial regulation system.

He described consumer regulation and financial product safety regulation as two sides of one coin, which cannot be separated.

"We believe that a separate consumer regulator should not be enacted, and, in fact, is in direct contradiction with an integrated, comprehensive approach that recognizes the reality that consumer protection and safety and soundness are inextricably bound," he said in his prepared remarks. "Consumer protection is not just about the financial product, it is also about the financial integrity of the company offering the product. Simply put, it is a mistake to separate the regulation of an institution from the regulation of its products."

Instead, he urged improvements to the existing framework and tighter regulation of lending and underwriting systems. He spoke up for small, independent community banks and credit unions that didn't participate in subprime lending and that are already overburdened by regulatory costs. Instead of punishing community banks and credit unions, Yingling pointed toward the unregulated non-banking sector, which bears much responsibility for the current crisis and which would fall outside any consumer finance safety or financial product regulation.

Write to Diana Golobay.