Fed's Move to ease the concerns in MBS market

Repo The Fed has already announced several initiatives to provide additional liquidity to the MBS market, including expanded, longer-term repo operations in which bond dealers pledge MBS to borrow short-term funds from the Fed. Only MBS backed by the federal government or by the federally-sponsored mortgage agencies Fannie Mae and Freddie Mac can be pledged in such operations. Term Security Lending Facility The Fed has also unveiled a facility to lend dealers up to $200 billion in Treasury bonds, starting March 27, in return for a like amount of both agency-backed and other ("private label") MBS for up to 28 days. Discount Window Finally, on Sunday it announced a new facility under which bond dealers can borrow directly from the Fed's discount window with a wide variety of investment-grade collateral, including agency and private label MBS and corporate bonds. Outright Purchase Some on Wall Street have pressed the Fed to go further and purchase MBS outright. The Fed has the legal authority to purchase agency MBS but not private label MBS. It has been reluctant to do so since that could potentially distort the fundamental prices of such securities. Its recent steps were aimed at averting a crippling aversion by investors to holding any MBS irrespective of their fundamental value. Relex Capital Contraint for Fannie and Freddie The Fed has, however, lent its moral support to other initiatives to boost demand for MBS. Fed Chairman Ben Bernanke has called on Fannie and Freddie to issue additional capital, which would expand their ability to buy or guarantee MBS. He has also called for an expansion of the Federal Housing Administration's authority to guarantee troubled mortgages.