Federal Reserve begins purchase of Freddie and Fannie MBS

6 January 2009

The Federal Reserve Bank of New York has started purchasing fixed-rate mortgage-backed securities (MBS) guaranteed by the troubled lenders Fannie Mae and Freddie Mac, it has been announced.

It has also started buying up MBS linked to the Government National Mortgage Association, or Ginnie Mae.

Under the program, which was unveiled in November, the bank can spend up to $500 billion on MBS guaranteed by the lenders. A further $100 billion is set aside for the direct purchase of home loans held by Fannie Mae, Freddie Mac and the Federal Home Loan Banks, the International Herald Tribune reports.

The aim of the scheme is to support the housing market by bringing down the cost of mortgages and freeing up capital for new loans.
Summary data on the MBS purchases completed so far will be released by the central bank on January 8th.

Fannie Mae and Freddie Mac faced collapse last year when the US mortgage market imploded. Together, the firms guaranteed or owned around half of the country's overall mortgage debt.

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