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US federal regulators have ordered mortgage firms Fannie Mae and Freddie Mac to buy around $40 billion of tainted mortgage bonds every month in an attempt to thaw the credit freeze and revive the economy.
An article in Bloomberg News on Saturday reported that Fannie Mae and Freddie Mac have told their bond traders that each company is required to buy at least $20 billion every month in mostly subprime, Alt-A as well as non-performing prime mortgage securities. Federal regulators had earlier placed restrictions on the growth of the two firms’ mortgage portfolios. However the recent market meltdown in US has necessitated an urgent infusion of credit into the financial system and this is the reason, the two mortgage firms are being asked to accelerate their mortgage bond purchases.
Fannie Mae and Freddie Mac were taken over by the US government in September as their impending collapse threatened to take down the entire housing finance market in the country. The firms are two of the biggest housing finance firms in the US and together they own or guarantee more than half of all the housing loans in the county. The federal take over was the first step in the series of bail-outs initiated by the government to halt the spread of mortgage-fuelled credit crisis.
