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Government announces new loan programs

Government announces new loan programs



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WASHINGTON (AP) -- The government has introduced a pair of new programs that will provide $800 billion to help unfreeze the market for consumer debt which Treasury Secretary Henry Paulson calls vital to supporting the economy.

Paulson says key markets for consumer debt such as credit cards, auto loans and student loans essentially came to a halt in October. He says the new programs are aimed to get lending back to more normal levels.

Paulson says all the government programs have been aimed at supporting the lending that is vital to the economy.

Earlier

WASHINGTON (AP) -- The government introduced a pair of new programs Tuesday that will provide $800 billion to help unfreeze the market for consumer debt and to make mortgage loans cheaper and more available.

The new programs from the Federal Reserve and Treasury Department are the latest effort to provides billions in government support to get the U.S. financial system back to more normal operations and keep the country from sliding into a deep and prolonged recession.

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.

(Copyright 2008 by The Associated Press. All Rights Reserved.)

Jeannine Aversa
    Martin Crutsinger Economic Writers

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