Related links:The Finance Board lifted its limit on the amount that FHLBanks would be allowed to invest in agency-backed MBS from 300 percent to 600 percent of capital, according to a press statement. "The Federal Home Loan Bank System plays a vital role in helping to finance homeownership and strengthening the economy at large," said Finance Board chairman Ronald Rosenfeld. "Increasing the agency MBS investment authority for the banks is another way in which the system can perform its traditional mission." Banks must notify the Finance Board prior to their first acquisition under the expanded authority, and include in its notification a description of the risk management principles underlying its purchases. The board said that -- for now -- it is limiting the expanded purchase program to AAA-rated agency securities issued by Fannie Mae and Freddie Mac only; some sources that spoke with Housing Wire, however, saw this as an interim step towards the outright purchase of third-party MBS by the Feds. "Once the logic of Federally-funded MBS liquidity is in place, it becomes a slippery slope into the private-party market," said one source, "and I don't think that's it's an overly long ride on the slip-n-slide to get there." The new purchase program is expected to provide "well in excess of $100 billion of additional liquidity to the MBS market," the Finance Board estimated. The move comes after the Office of Federal Housing Enterprise Oversight loosened capital restrictions on both Fannie Mae and Freddie Mac last week, bringing an estimated additional $200 billion in new liquidity into the frozen mortgage market. HW readers should keep in mind, however, that the gigantic agency MBS market alone is well north of $4 trillion in size when attempting to frame the relative size of efforts made thus far. Treasury Secretary Henry Paulson praised the move as a temporary measure that "will bring more liquidity to the mortgage market." For more information, visit http://www.fhfb.gov.
Federal Home Loan Banks to Buy $100 Billion -- or More -- in Additional Agency MBS
In the latest move to restore liquidity to the secondary mortgage market, the Board of Directors of the Federal Housing Finance Board on Monday said it had passed a resolution authorizing the Federal Home Loan Banks it regulates to increase their purchases of agency mortgage-backed securities. The resolution goes into effect today.