The Treasury Department is "moving rapidly" to implement a plan to buy up toxic assets from banks and financial institutions, but financial markets continue to be "severely strained" and the plan is not intended to save every bank.
Treasury Secretary Henry Paulson said he’s appointed an interim assistant secretary to begin managing and implementing the Emergency Economic Stabilization Act, which authorizes the government to borrow up to $700 billion to buy troubled assets, purchase or insure mortgages, and inject capital directly into financial institutions.
Paulson said he is working with President Bush to identify a leader to oversee the program, whom he hopes will be confirmed by the Senate as soon as possible after lawmakers return from recess in November.
The Treasury secretary said the housing correction "is the root cause of the current financial market turmoil" and that mortgage credit must stay available in order to "more quickly turn the corner on the housing correction."
In an address Wednesday, Paulson said the Federal Housing Finance Agency, which placed Fannie Mae and Freddie Mac under conservatorship on Sept. 7, will supervise growth in the companies’ mortgage portfolios. The FHFA today announced that it won’t hold Fannie and Freddie to capital requirements that might have restricted such growth (see story).
Paulson noted Treasury also has a program to purchase mortgage-backed securities issued by Fannie and Freddie directly. Stabilizing Fannie and Freddie to support mortgage availability has been "constructive," he said.
The interest rate on a 30-year fixed-rate mortgage has come down from its peak of 6.6 percent earlier this year to as low as 5.9 percent this week, Paulson said — a decrease that helps American households reduce monthly mortgage payments and increases the potential for more homeowners to refinance mortgages at lower rates.
"As Treasury and the GSEs increase their purchases, mortgage affordability should improve for Americans," Paulson said. "If we were not actively engaged at the GSEs, we would have expected that rate to increase and further slow the progress of the housing correction."
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