More buying of mortgage bonds OKd

The nation’s 12 Federal Home Loan Banks were freed Monday to boost their purchase of mortgage-backed bonds by about $150 billion -- another government step to pump money back into a market that slumped as the housing crisis deepened.

Directors of the Federal Housing Finance Board, the banks’ regulator, approved the temporary increase. The purchases will be restricted to bonds guaranteed by housing finance giants Fannie Mae and Freddie Mac, the board said.

The approval for Federal Home Loan Banks to increase their purchases comes a week after Fannie Mae and Freddie Mac were cleared to buy at least $200 billion of mortgage securities to add to their already huge portfolios.

“Every marginal investor helps,” said Andrew Harding, who helps manage $18 billion as chief investment officer for fixed income at Allegiant Asset Management in Cleveland.

Earlier this month, yields on 30-year, fixed-rate mortgage bonds guaranteed by Fannie Mae soared to their highest level above 10-year U.S. Treasury notes in more than two decades as some investors balked at buying all but government debt.

The market has loosened up a bit in recent days.

The 12 Federal Home Loan Banks, which have the implied backing of the government, are cooperatives created in 1932 to spur mortgage lending. The system’s 8,100 owners and customers range from small savings and loans to Citigroup Inc.

The government increased the limit on the banks’ investments to six times capital for two years, up from three times, the statement said. Based on the banks’ capital of $54 billion, the change may increase the banks’ purchasing power by about $150 billion.

Some analysts warned that the move could backfire, costing taxpayers money.

“The Federal Home Loan Banks have been notoriously bad managers of interest-rate risk,” said Paul Miller, a bank analyst at Friedman Billings Ramsey & Co. in Arlington, Va.