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Fed taking mortgages as collateral in $200B Treasury auction

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In a new program intended to ease the credit crunch, the Federal Reserve today announced it will lend $200 billion in Treasury securities to banks and investment firms, allowing them to pledge mortgage-backed securities as collateral. The Fed said the move to provide more liquidity was a reaction to strains on financial markets, and is being made in concert with similar, but smaller, injections of temporary funding through the European Central Bank, the Bank of England, the Swiss National Bank, and the Bank of Canada. The Fed will auction off Treasury securities on a weekly basis, and the dealers who buy them will have 28 days to settle up. The new Treasury auctions are similar to short-term cash loans the Fed began making in December through an auction process. The Fed announced Friday that it was increasing the amount of those 28-day term auctions from $60 billion a month to $100 billion a month for as long as needed, and is also initiating $100 billion in 28-day te...