03/23/2020 | by

The Federal Reserve, Treasury and the Federal Housing Finance Agency of FHFA—which regulates Fannie and Freddie—have taken dramatic steps over the past week with the goal of addressing the financial market ramifications of the dramatic reduction in real activity.

The Fed has provided large dollar amounts of the programs it designed over a decade ago to support financial institutions and provide liquidity to financial markets. On March 15 the Fed lowered interest rates and announced $700 billion in purchases of Treasury securities and $200 billion in purchases of Agency mortgage-backed securities (MBS). Today the Fed offered ever greater support for financial markets. The purchases of Treasury and Agency MBS will be “in the amounts needed” to support financial markets and the economy. This open-ended commitment demonstrates the depth of the Fed’s support

The Fed is also creating programs that cover a wider range of markets and business sectors. Of particular importance for commercial real estate is the Fed’s decision to include Agency CMBS (to support funding for apartment markets) in its securities purchases, which had not been included in earlier rounds. This move addresses a critical lack of liquidity in recent days in Agency CMBS markets. The FHFA has used its own regulatory powers to help bolster CMBS. This was accompanied by an announcement by the Federal Housing Finance Administration has authorized Fannie Mae and Freddie Mac provide CMBS investors with short-term financing of their positions, providing liquidity to these investors.

The Fed also announced two new facilities that may provide support for REIT and other corporate debt and debt issuance. The Primary Market Corporate Credit Facility (PMCCF) for new loans and bond issuances, and the Secondary Corporate Credit Facility (SMCCF) to provide secondary market liquidity in the corporate bond market.

In addition, the Fed:

  • Established the Term Asset-Backed Securities Loan Facility (TALF): under which the Federal Reserve Bank of New York will provide loans to U.S. companies that are secured by certain eligible consumer and small business asset-backed securities, such as student loans, auto and credit card loans, loans guaranteed by the Small Business Administration, and certain other assets.
  • Supporting municipalities by expanding the Money Market Mutual Fund Liquidity Facility (MMLF) to accept municipal debt as well as other securities.

The Federal Reserve also announced that it plans to introduce other new measures soon to help small and medium sized businesses through these difficult times.

(Contact: John Worth at jworth@nareit.com)

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