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Fed Throws $800 Billion Lifeline to Consumers

Government will purchase more mortgages, offer backing for loans

By Mark Huffman
ConsumerAffairs.com

November 25, 2008

Living in a Bubble? Mortgage Crisis? Act Now to Avoid Foreclosure • Avoiding Foreclosure Takes More Than Hope --- • Consumers Fall Further Behind in Payments • House Democrats Seek Bankruptcy Rule Changes • Pending Home Sales Post Record Drop • Home Prices Plunge in October • Navigating the Mortgage Modification Maze • Mortgage Rates Reach 37-Year Low • Boomers Facing Tough Social Security Choices • Is It Safe to Buy a House? • Mortgage Modification Meltdown • Mortgage Defaults Still Rising • Mortgage Rates Take Another Sudden Drop • Fed Slashes Rates to Near Zero • Consumer Prices Plunge in November • Home Values May Fall More in 2009 • Americans' Net Worth Plunges Nearly $3 Trillion • Surge in Mortgage Applications Doesn't Last • Pending Home Sales Slide in October • Get Your Mortgage Rate Lock Ready • Modifying Mortgages Isn't Slowing Default Rate • Mortgage Delinquencies, Foreclosures Surge • Mortgage Applications Surged 112 Percent Last Week • GAO Calls for Better Bailout Oversight • Homes Lose More Value In Third Quarter • Home Prices Post Record Decline • Fed Throws $800 Billion Lifeline to Consumers • Existing Home Sales Drop in October • When in Doubt, Leave Nothing Out • Fannie Mae and Freddie Mac Suspend Foreclosures • Consumer Prices Plunge in October • Paulson Rejects Bailout Money for Detroit • Another Glimmer of Hope in The Housing Market • Buyers' Beware Market • FDIC Backs More Aggressive Loan Modification Plan • Housing 2009 Forecasts Mixed, But Mostly Grim • Foreclosures Up Five Percent in October • Feds Shift Gears On Bailout, Puts Focus On Consumers • More Homeowners Under Water in Third Quarter • Feds Mount New Effort to Help Struggling Homeowners • Lenders Embrace Workouts for Struggling Homeowners • Obama Can't Quickly Raise Homebuyers' Hopes • At Last: Bailout Trickling Down to Struggling Homeowners • New Home Sales Rise in September • How to Appeal Your Property Tax Bill • Existing Home Sales Rise in September • Administration Considers More Help for Homeowners • Foreclosure Activity Drops in September • Southern California Home Sales Surge 65 Percent in September • HOEPA: New Hope for Outlawing Abusive Mortgages • FDIC Chief: Not Enough Help for Homeowners --- • More ...

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.

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