Bloomberg.com is reporting that the Federal Reserve has bought $10.2 billion of Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities. According to the New York Fed’s Web site they bought $6.9 billion of Freddie Mac securities, $2.9 billion of Fannie Mae bonds and $450 million of Ginnie Mae debt.
Mortgage-backed securities are bundles of mortgages. The value of these securities comes from the flow of payments being made on the principal and the interest of the mortgages in the bundle. Many people, facing a combination of personal economic problems and rising payments on their adjustable-rate mortgages are not able to make their payments. This results in the securities being worth far less and the institutions that hold them unable to do anything.
The $10.2 billion purchase is one of the steps taken this week in a program attempting to lower mortgage rates. It appears that the program is working. It is being widely reported (WSJ, MSNBC, Reuters, NYT…) that mortgage rates are falling, and are currently at around 5%. Many experts are predicting that the rates will go as low as 4.5%Email This Post To a Friend.