WASHINGTON, DC - The Federal Reserve said Tuesday that it would buy up to $600 billion in mortgage-backed assets in another attempt to deal with the financial crisis. The Fed said it would purchase up to $100 billion in direct obligations from the mortgage finance giants Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks. It also will purchase another $500 billion in mortgage-backed securities, pools of mortgages that are bundled together and sold to investors.
The $600 billion effort on mortgages came as the Fed also unveiled a program to help unfreeze the market that backs consumer debt such as credit cards, auto loans and student loans.
The program on consumer debt will lend up to $200 billion to the holders of securities backed by various types of consumer loans. Treasury Secretary Henry M. Paulson Jr. had said recently that the government was working on the new program, which will be supported by $20 billion of credit protection provided by the $700 billion bailout fund.
The Fed said that the $600 billion effort to support the mortgage market was being taken to reduce the cost of home mortgages and increase their availability. It said the purchases of the mortgages and mortgage-backed securities would take place over several months.
The severe financial crisis that is rocking global markets at the moment began more than a year ago with rising defaults on subprime mortgages, loans provided to borrowers with weak credit histories.
The billions of dollars of losses financial institutions have suffered on their mortgage loans have caused banks to stop making new loans of various types, which almost certainly has helped push the country into a deep recession.
Source: NYtimes.com