Led by Treasury, Feds Ready Rescue Plan

The Treasury Department is readying a legislative proposal to purchase illiquid mortgage assets from financial institutions -- and will significantly boost its MBS purchase program to provide immediate support to the mortgage market. Late Thursday, Treasury Secretary Henry Paulson and Federal Reserve Board Chairman Ben S. Bernanke met with congressional leaders to discuss creation of a Resolution Trust Corp.-like entity to purchase problem mortgage assets. Legislation to make it happen could come early next week. Treasury and Federal Reserve officials and senior members of Congress have concluded that a more systematic approach to the nation's financial crisis is needed. At a news conference Friday morning, Secretary Paulson said he will propose a legislative package and work with members of Congress over the weekend to "flesh out the details." He did not provide specifics about the package, except to say the program will require hundreds of billions of dollars to remove the illiquid mortgage assets that are "weighing down our financial institutions and threatening our economy." Pressure to create an RTC-type entity to deal with the financial crisis has been building for several weeks. Meanwhile, Fannie Mac and Freddie Mac have been directed to increase purchases of their mortgage-backed securities. Treasury is doubling its MBS purchases this month from $5 billion to $10 billion. The agency unveiled its MBS program Sept. 7 when it placed the two government-sponsored enterprises into conservatorships.