WASHINGTON – The Treasury Department, which took over Fannie Mae and Freddie Mac last month, is directing the two secondary mortgage market giants to start buying $40 billion a month of distressed mortgage securities in order to recreate the failing market.
Officials plan to pump new liquidity into the secondary market by having Fannie and Freddie buy up subprime, Atl-A and non-performing prime mortgages, Treasury officials said over the weekend.
The effort comes as as the markets have seized up, causing mortgage securities held by banks and credit unions to plunge in value and making those types of mortgage backed securities almost impossible to trade.
The initiative is seen as a stop-gap as the Treasury is preparing to start buying up to $700 billion of distressed mortgage securities from banks and credit unions, but that program is not expected to get under way for several weeks still.
The expanding plans to prop up the secondary mortgage market are expected to particularly aid corporate credit unions, which are reporting as much as $10 billion of unrealized losses on their mortgage securities holdings.
