The Federal Reserve has taken steps to keep credit moving during this time of crisis and uncertainty, committing to continued purchases of Treasury securities and agency mortgage-backed securities – including commercial mortgage-backed securities – as well as to offer large-scale overnight and term repurchase agreement operations.
The Fed has directed the Open Market Desk to continue rolling over at auction all principal payments from the Fed’s holdings of Treasury securities and to reinvest all principal payments from the holdings of agency debt and agency mortgage-backed securities received during each calendar month in agency mortgage-backed securities.
“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,” said Mortgage Bankers Association President and CEO Bob Broeksmit.
“Both are powerful forms of stimulus for the economy, which have been slowed due to unprecedented market volatility,” he added.
The Fed has also directed the Open Market Desk to engage in dollar-roll and coupon-swap transactions as necessary to facilitate settlement of its agency mortgage-backed securities transactions.
In turn, the Federal Housing Finance Agency (FHFA) authorized Fannie Mae and Freddie Mac to enter into additional dollar-roll transactions, which will provide mortgage-backed securities investors with short-term financing of their positions, providing liquidity to these investors. Eligible collateral is limited to Fannie and Freddie mortgage-backed securities, and the transactions must be undertaken via an auction or similar mechanism to ensure that they occur at a fair market price.
Also in the interest of facilitating liquidity in the mortgage market, the FHFA has directed the GSEs to provide “alternative flexibilities” to satisfy appraisal requirements and employment verification requirements through May 17. The idea is to reduce the need for appraisers to inspect the interior of a home for eligible mortgages.
In addition, in the event lenders cannot obtain verbal verification of the borrower’s employment before loan closing, Fannie and Freddie will allow lenders to obtain verification via an e-mail from the employer, a recent year-to-date paystub from the borrower or a bank statement showing a recent payroll deposit. Lenders should continue to utilize sound underwriting judgment to ensure these alternatives are appropriate to the borrower’s circumstances.