Fed Policy and Actions:
- Stabilize the TBA mortgage backed securities market, instead of announcing big purchases (much greater than daily production) to temporarily prop up the market they should be looking to stabilize the market by buying mortgage securities when the prices are moving down in the market, and selling securities when the market is moving up. The goal is price stabilization in this market seized by fear in reaction to the pandemic to allow for better execution and liquidity across the whole market.
- Provide a liquidity funding platform for independent mortgage servicers and mREITs. The announced forbearance measures and requests have inundated the leveraged mortgage servicers and they need funding to carry on.
- Buy loans directly from both FNMA and FHLMC – both of whom have stopped acting like government agencies and have behaved more like independent mortgage banking companies out for a profit as indicated by their pricing spreads to the UMBS securities they are supposed to be pricing from. The spread over the past week has widened out to levels never seen before. For mortgage bankers relying on selling to either agency’s cash window they are being double or triple hammered by poor cash sale executions, cash crunches caused by TBA margin calls, and servicing valuation and cash flow problems on the servicing side. A direct infusion to both agencies is needed to make sure we all keep functioning.
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