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Tuesday, November 25, 2008
Fed to Buy $600B in Mortgage-Backed Assets
Kathryn Elizabeth Tuggle
FOXBusiness
The Federal Reserve announced on Tuesday that it will purchase as much as $600 billion worth of mortgage-backed assets from fledgling companies in hopes of jump-starting lending by banks nationwide.
This step stands to further combat the current financial crisis, and in conjunction with the Fed’s new program on lending, stands to open up the credit markets and unfreeze credit cards, car loans, and student loans.
The Fed plans to purchase mortgage obligations worth $100 billion from Fannie Mae (FNM) and Freddie Mac (FRE) as well as the Federal Home Loan Banks. Shares of Freddie Mac and Fannie Mae were up by 33% to 60 cents and by 45% to 50 cents, respectively, when the market opened, marking the highest opening for the companies in over a week. The Federal Reserve will begin purchasing Fannie's and Freddie’s direct obligations in a series of auctions that will begin next week.
The Fed has also said it will purchase $500 billion of mortgage-backed securities, which will go up for sale before the end of the year, and be sold over a number of months.
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