In September, the FSOC endorsed the FHFA’s capital rule, even urging the agency to use tougher, more bank-like standards. What the report didn’t say was how the council reached its conclusions.
The council said any distress that affects the secondary mortgage market activities of the GSEs “could pose a risk to financial stability if those risks are not properly mitigated.”
The Federal Reserve Bank of New York will have likely added nearly $1.5 trillion of MBS to the System Open Markets Account by January, and the Fed will once again own more than a third of all agency product.
MBA President Bob Broeksmit argues that the new LLPA “flies in the face of the administration’s recent executive actions urging federal agencies to take all measures within their authorities to support struggling homeowners.”
When panic first set in over the economic impact of COVID-19, investors sold off historically large volumes of MBS and Treasuries. As a result, liquidity and pricing efficiency both took a beating. It was the Fed’s gluttonous appetite for these securities that brought markets off the cliff.
After Sept. 15, Fannie Mae and Freddie Mac will no longer accept LIBOR loan applications. Moreover, the FHFA and the GSEs expect all loan purchases linked to the London benchmark to cease by yearend.
Mortgage servicers’ liquidity issues could ease if non-agency lending is acceptable collateral under the TALF programs, according to Urban Institute’s Jim Parrott.