Fed to start buying mortgage-backed securities (AP)

Tuesday, December 30th, 2008 | Finance News

WASHINGTON – The Federal Reserve said Tuesday that it will begin purchasing up to $500 billion in mortgage-backed securities early next month in an effort to bolster the long-suffering housing market.

The Fed first announced that it would purchase the securities, which consist of pools of mortgages that are bundled together and sold to investors, in late November but did not say when they would begin. The central bank will buy securities guaranteed by the government-controlled home loan giants Fannie Mae, Freddie Mac and Ginnie Mae, a federal agency.

Mortgage rates have fallen to historic lows since the Fed announced the program and that has spurred a surge in home refinancings. Freddie Mac said last week that average rates on 30-year fixed-rate mortgages dropped to 5.14 percent, the lowest since the company's weekly mortgage rate survey began in April 1971.

The mortgage-related asset purchases, along with a separate Fed program unveiled last month to buy securities backed by consumer debt, have the same aim: to boost demand for those assets. In doing so, the government hopes to lower the rates being charged for consumer loans. That would make loans for everything from homes to cars more available.

The central bank said it will buy mortgage-backed securities until the end of the second quarter of 2009.

The Fed also said the risk of losses from the purchases is "minimal" because they are backed by the government-sponsored mortgage giants.

The Fed also announced that BlackRock Inc., Goldman Sachs Asset Management, Pacific Investment Management Co. and Wellington Management Company LLP will operate the program.

Federal regulators seized control of Fannie and Freddie in September as the companies faced mounting losses from the housing market's bust. Freddie has since received an injection of $13.8 billion in government aid. Fannie has yet to request any such aid but has warned it may need to do so.

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