Document Type

Case Studies


By late 2008, the secondary mortgage markets were suffering high default rates, causing mortgage lending to slow and the value of mortgage securities to plummet. The Federal Reserve lowered the federal funds rate, and the government placed Fannie Mae and Freddie Mac into conservatorship, yet credit in housing and other financial markets remained tight. On November 25, the Fed announced its intent to purchase up to $500 billion in agency mortgage-backed securities (MBS) and $100 billion in agency debt to reduce the cost and increase the availability of mortgage credit, which would support housing markets and improve conditions in financial markets more generally. The Large-Scale Asset Purchase (LSAP) program (also known as Quantitative Easing I) expanded to include purchases of $300 billion in longer-term Treasury securities. The Fed began to wind down the program in September 2009 after purchasing in total $172.1 billion in agency debt, $1.25 trillion in MBS, and $300 billion in Treasury securities. Over the next several years, the Fed allowed its holdings of agency debt securities to run off, but it continued to purchase agency MBS and Treasury securities through subsequent purchase programs. The academic community generally concurs that the LSAP program succeeded in lowering interest rates, although it does not agree on its impact, particularly on lowering longer-term interest rates.