Associated Press
Tuesday, March 25, 2008; D03

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

The move raises the limit on such purchases by the 12 regional bank networks in the system to 600 percent of capital from 300 percent, said the Federal Housing Finance Board, which oversees the banks.

The aim is to inject money into a market that has seized up because of a global credit crunch sparked by the U.S. housing market's 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 M. Paulson Jr. said in a statement.

Created by Congress during the Depression, the self-funded bank system has 8,100 members around the country: banks, savings and loans, and credit unions. About 80 percent of U.S. financial institutions are members.

Meanwhile, Fannie Mae reported yesterday that its serious-delinquency rate for home loans rose in January to 1.06 percent of the $2.9 trillion in mortgages it holds.

A mortgage is 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 Mae and Freddie Mac, government-chartered housing finance companies, 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 losses this year.