By Mark Huffman
ConsumerAffairs.com
November 25, 2008
The U.S. Federal Reserve has upped the ante significantly in the fight to unfreeze the credit market for consumers and would-be homebuyers.
The Fed announced Tuesday it would spend up to $600 billion to purchase mortgages held or backed by Ginnie Mae, Fannie Mae and Freddie Mac -- the so-called GSEs. It will also kick in an additional $200 billion to provide consumer and small-business loans.
The $800 billion total exceeds the original $700 billion Troubled Asset Relief Program funds, to bail out large banks.
"Spreads of rates on GSE debt and on GSE-guaranteed mortgages have widened appreciably of late," the Fed said in a statement, explaining the move. "This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally."
The Fed said purchases of up to $100 billion in GSE direct obligations under the program will be conducted with the Federal Reserve's primary dealers through a series of competitive auctions and will begin next week. Purchases of up to $500 billion in MBS will be conducted by asset managers selected using a competitive process with a goal of beginning these purchases before year-end.
The move is designed to make it easier for consumers to get loans, in hopes of keeping consumer spending at a level that would support economic growth. Treasury Secretary Henry Paulson said the government would spend whatever is necessary.
The Fed also announced that it will lend up to $200 billion on a non-recourse basis to holders of AAA rated asset-backed securities backed by new loans, for things like college tuition, vehicles, credit cards and loans guaranteed by the Small Business Administration.
