Of the $800 bn, which is addition to the $700 bn previously announced, $600 bn will be used to buy up mortgage backed securities. Of this $600 bn, $100 bn will be used to buy debt from Fannie Mae and Freddie Mac, who were close to collapse earlier in the year, and $500 bn will be used to buy mortgage backed securities. The latter is mortgages that have previously been pooled together and then sold to investors.
The mortgage support package has been undertaken with the intention of reducing borrowing costs and broadening the availability of mortgages to homebuyers.
The balance of $200 bn of this package is to be used to try and lubricate the consumer credit market, where car, credit card and student laons have been much more difficult to get. The money will be given to holders of distressed debt that is backed by consumer and small business loans, where the Fed will accept these as collateral.
Henry Paulson said "It will take time to work through the difficulties in our market and our economy and new challenges will continue to arise.
We are committed to using all the tools at our disposal to preserve the strength of our financial institutions and stabalise our financial markets to minimise the spill-over into the rest of the economy"
