Will the Fed Buying Bad Credit Home Loans Help Housing and Credit Markets Recover?
by admin ~ November 26th, 2008.The Federal Reserve said Tuesday it will buy up to $600 billion in mortgage-backed assets in another attempt to deal with the financial crisis. The Fed agreed to purchase $100 billion in direct obligations from mortgage 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 home mortgages that are bundled together and sold to investors. The Fed chairman Sheila Bair continues to encourage mortgage lenders to be more pro-active with affordable home loan modifications to maintain liquidity and promote more foreclosure prevention programs.
The $600 billion effort on mortgage loans came as the Fed also unveiled a new program to help unfreeze the market that backs consumer credit card debt, 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 Paulson 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 a number of months. The traumatic financial crisis that continues to shake global markets at the moment began more than a year ago with rising foreclosure fueled by home loan defaults on bad credit mortgages. 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.
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