Home loan banks can buy $100B more mortgages

The government allows regional banks to purchase twice as many securities from Fannie and Freddie, another move to inject liquidity into the struggling housing market.

March 24, 2008: 1:28 PM EDT

WASHINGTON (AP) -- The Federal Home Loan Bank system can increase purchases of Fannie Mae and Freddie Mac securities by $100 billion over two years in the latest government effort to stabilize the devastated market for mortgage-backed assets.

The 12 regional banks in the system can up purchases of securities issued by the two government-sponsored companies to 600% of capital from 300%, the Federal Housing Finance Board, which oversees the banks, said Monday.

The aim is to inject liquidity into a market that has seized up amid a global credit crunch sparked by the U.S. housing market downturn.

The move "to enable the Federal Home Loan Banks to assist temporarily in this period of stress, consistent with safe and sound operations, will bring more liquidity to the mortgage market," Treasury Secretary Henry Paulson said in a statement.

Created by Congress during the Depression, the self-funded home loan bank system has some 8,100 members around the United States: banks, savings and loans, and credit unions. Eight of every 10 U.S. financial institutions belongs to the home loan bank system.

Meanwhile, Fannie Mae (FNM) reported Monday that its serious delinquency rate for home loans jumped .08% in January to 1.06% of the $2.9 trillion in mortgages it holds.

Mortgages are deemed seriously delinquent when the borrower has missed three or more consecutive monthly payments or the loan has been referred for foreclosure.

Last week, the government relaxed capital requirements for Fannie and Freddie (FRE, Fortune 500) as part of a plan to inject an additional $200 billion for financing home loans. The initiative requires the two companies to raise substantial funds, likely through special stock sales.

It was the third step the government has taken in recent weeks to allow Fannie and Freddie to shoulder larger burdens in the mortgage market despite their multibillion-dollar losses last quarter and expectations of further red ink this year.