The Fed program for consumer debt will lend up to $200 billion to the holders of securities backed by various types of consumer loans such as credit cards, auto and student loans. The goal is to provide greater demand for these securities as a way of lowering interest rates consumers are paying and to make these loans more available.
Treasury Secretary Henry Paulson had signaled that the government was working on this new program. It will be supported by $20 billion of credit protection provided by the $700 billion government rescue fund.
The Fed also said Tuesday it will buy up to $600 billion in mortgage-backed assets in a separate attempt to deal with the financial crisis.
The Fed said it will purchase up to $100 billion in direct obligations from mortgage giants Fannie Mae and Freddie Mac as well as the Federal Home Loan Banks. It also will purchase another $500 billion in mortgage-backed securities, pools of mortgages that are bundled together and sold to investors.
The severe financial crisis rocking global markets began more than a year ago with rising defaults on subprime mortgages, loans provided to borrowers with weak credit histories.
The billions of dollars of losses financial institutions have suffered on their mortgage loans have caused banks to stop making new loans of various types. The huge loan losses have also caused multiple failures and takeovers, resulting in the biggest upheavals in the financial system since the Great Depression.
Click here to find sbups lowest mortgage rates.