The government has taken steps today that are expected to provide up to $100 billion in additional liquidity to the ailing mortgage securities market.
The Board of Directors of the Federal Housing Finance Board voted Monday to increase the regulatory limit for the Federal Home Loan Banks.
Prior to the move, FHLB was limited to mortgage-backed securities investments of up to 300 percent of the level of capital as of the end of the prior month, the press release said. Today's move pushes MBS investments to 600 percent of month-end capital.
Only MBS issued by either Fannie Mae or Freddie Mac apply to investments under today's approval, and loans backing acquired MBS must have been originated in compliance with federal bank regulatory guidance on nontraditional and subprime mortgage lending. In addition, FHLB must advise the board prior to its first acquisition under the expanded limit.
The expanded investment limit, in effect from today until March 31, 2010, is projected to infuse as much as $100 billion into the MBS market -- depending on individual FHLB portfolio management decisions, the board said.
The 12 FHLBs are government-sponsored enterprises. Today's move follows similar actions last week by the Office of Federal Housing Enterprise Oversight, which regulates Fannie and Freddie. As a result of OFHEO's move, Fannie and Freddie, which are also GSEs, are expected immediately to provide up to $200 billion in liquidity to the MBS market.