WASHINGTON — In another effort to support the housing market and the broader economy, the Federal Reserve said Tuesday it will launch its program to buy mortgage-backed securities in early January.

Under the program, initially announced on Nov. 25, the Federal Reserve will buy up to $500 billion in mortgage securities issued by the Congressionally chartered mortgage giants Fannie Mae and Freddie Mac as well as Ginnie Mae.

The Fed said Tuesday it plans to complete these purchases by the end of the second quarter of 2009.

"The program is being established to support the mortgage and housing markets and to foster improved conditions in financial markets more generally," the Fed said.

The plan to buy mortgage-backed securities is part of the Fed's deployment of unorthodox policy tools as it seeks to keep credit flowing to the economy even as banks, struggling with bloated balance sheets, are tightening lending standards.

Mortgage bonds have gained and mortgage rates have fallen by almost a full percentage point and are hovering around 5% since the mid-November announcement. The Fed has already started a program to purchase debt issued directly by Fannie and Freddie, as well as the Federal Home Loan Banks. To date the Fed has purchased $15 billion of this agency debt, out of a $100 billion planned.

The central bank is also working on a program to acquire at least $200 billion in consumer-related debt, which could be expanded to include private residential mortgages and commercial real estate-backed debt.

In Tuesday's statement, the Fed said it has picked private investment managers to act as its agents in implementing the program. The managers selected are BlackRock Inc. (BLK), Goldman Sachs Asset Management, PIMCO, and Wellington Management Co. LLP.

Eligible assets for purchase are fixed-rate agency mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae. The program includes, but isn't limited to, 30-year, 20-year, and 15-year securities of these issuers. The program doesn't include CMOs, REMICs, Trust IOs/Trust POs, and other mortgage derivatives or cash equivalents.

The Fed said that initially the investment managers will trade only with primary dealers eligible to transact directly with the Fed's New York bank, but noted that dealers are "encouraged" to submit offers for themselves and on behalf of clients.

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