With struggling economy,
government's latest effort to unfreeze credit market may help economy to stabilize. With two
new programs announced Tuesday government will provide financing to unfreeze debt
from home mortgages to credit cards.
Fed will try to increase the availability of home
loans to borrowers by buying up to $100 billion in direct
obligations from mortgage giants Fannie Mae and Freddie Mac. The Fed
will also buy $500 billion in mortgage -backed securities that are
put together and sold to investors.
From consumer debt side, the new program will lend up
to $200 billion to the credit card companies. It will be supported
by $20 billion of credit protection from the $700 billion
package.
Government and Wall Street want to see credit card
companies and banks to return to normal levels of lending to help
move economy forward.
With the new mortgage plan government wants to reduce
cost and increase availability of credit for home purchases and
mortgage refinancing.
The new plan will include:
- Fed buying up to $100 billion from Fannie Mae,
Freddie Mac and the 12 Federal Home Loan Banks in a competitive
bidding process.
- The Fed will contract asset manager to buy up
to $500 billion in mortgage-backed securities issued by Fannie Mae,
Freddie Mac and Ginnie Mae.
- The debt and asset purchase will take affect in
the next several quarters.
From consumer debt, Fed will take action:
- Federal Reserve Bank of New York will lend up
to $200 billion to holders of certain triple-A rated asset backed
securities backed by newly originated and recently originated
consumer and small business loans.
- The Treasury will provide $20 billion in
credit protection to the New York Fed for the program.
- The Treasury funds will come from the $700
billion financial rescue fund, known as the Troubled Asset Relief
Program (TARP).
- The New York Fed will offer a fixed amount
of loans from the facility on a monthly basis.
Total cost of economic plans is reaching a staggering
amount of $8.31 trillion.
With the help of government to ease economical crises,
rates on 30-year mortgage dropped 1-1/8 percentage point to 4-7/8
percent on Tuesday, after Fed announced that would add additional
$600 billion plan to help mortgage market.
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