federal reserve board and its staff are consulting with the treasury regarding the tarp. in addition, chairman bernanke serves as the chairman of the oversight board for tarp that will, among other things, review the policies that are implemented and make recommendations, as appropriate, regarding the use of authorities under tarp. eesa also temporarily raised the limit on the deposit insurance coverage provided by the federal deposit insurance corporation ( fdic ) from $ 100, 000 to $ 250, 000 per account. last week, the first use of tarp funds was announced. in particular, the treasury announced a voluntary capital purchase program, and nine of the nation ’ s largest financial institutions have agreed to participate. the program is open to financial institutions of all sizes. under the program, the treasury would acquire capital of financial institutions on terms that are attractive to the institutions and with features that protect the taxpayer. at the same time, the federal reserve board, the fdic, and the secretary of the treasury in consultation with the president, determined that there were significant risks to the stability of the financial system. with this determination, the fdic used its authority to expand for a specified period, insurance to non - interest - bearing transactions accounts, such as payroll accounts, and a guarantee for newly issued senior unsecured debt of fdic - insured depository institutions, including their associated holding companies. a second, complementary, use of tarp funds will be to purchase mortgage assets, including mortgage - backed securities and whole loans. these purchases are designed to remove uncertainty from lenders ’ balance sheets and to restore confidence in their viability. another objective is to improve the modification efforts of servicers on these loans to more effectively prevent avoidable foreclosures. the federal reserve system is also working to develop solutions to rising foreclosures. preventing avoidable foreclosures is good for borrowers, communities, and the economy. a number of efforts are underway. the federal reserve has worked with other agencies to put in place the standards and procedures for the new hope for homeowners ( h4h ) program, and i serve on the oversight board. these loans can help borrowers who might otherwise face foreclosure because the new loan payments are more affordable and the homeowners get some equity in their homes. lenders and servicers are analyzing their borrowers for good candidates for the h4h program, and the fha and its authorized lenders are poised to process applications

deeply into monetary policy generally, i would like to make a few observations about the efficacy and costs of mbs purchases specifically. in doing so, i want to reiterate that these are my views and may not be in accord with those of my colleagues on the fomc. in many ways, purchases of mbs have the same downward effect on the general level of long - term interest rates as purchases of other longer - term securities. but, in addition, purchases of agency mbs reduce the spread between treasury and mbs yields and thus, compared with purchases of treasury securities, have somewhat larger effects on mortgage rates. this larger effect was especially true in the first round of purchases in 2009 when investor uncertainty about the degree of government support for agency mbs was quite high. 13 mbs purchases also influence mbs yields by affecting the cost of hedging the risk ( known as convexity risk ) that mortgages prepay more quickly when rates decline or more slowly when rates increase, because, unlike some mortgage market investors, the federal reserve does not hedge such risk. lower mbs yields result in lower mortgage rates, which can spur the economy through elevated home - purchase and refinancing activity. but this effect is not yet fully transmitted to the economy, as the difference between mbs yields and mortgage rates is still somewhat wide and, as i discussed earlier, tight credit has prevented many households from accessing the low rates. any improvement in credit conditions would thus act to improve the efficacy of mbs purchases. similarly, policies that constrain mortgage lending or increase its cost would reduce efficacy. i think the additional impetus to housing from mbs purchases is appropriate for at least three reasons. first, the housing market has suffered extraordinary damage during the past few years. second, even with the recent positive signs, housing investment has contributed far less to economic growth than in a typical recovery. and, third, even as terms and standards on other types of credit have eased, standards for mortgage credit remain quite tight. while the purchase of agency mbs has some special efficacy in supporting housing markets, the peculiarities of the mbs market itself present some potential market functioning issues that bear monitoring. the mbs market is not as deep or as liquid as the treasury market, and the total size of the market is not growing as quickly. as refinancing activity slows, the gross pace of new mbs issuance could slow as well, and federal reserve purchases at the