The Federal Reserve said Tuesday it will buy up to $600 billion in mortgage-backed assets in another attempt to deal with the financial crisis. The Fed said it will purchase up to $100 billion in direct obligations from mortgage giants Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks. It also will purchase another $500 billion in mortgage-backed securities, pools of mortgages that are bundled together and sold to investors.
The intent – The fed is adding liquidity in to the market so as to unfreeze the credit squeeze that is preventing institutions to lend money – i.e loans to small businesses, mortgage loans, making payroll and so keeping businesses afloat, student loans, credit cards, auto loans etc. This action will slowly thaw the market and help lending, the basis of a consumer market, to start picking up gradually.
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