How Significant is Fed's Plan to Support Mortgage Market?

The Fed announced a plan last week to buy another $750 billion of mortgage-backed securities, as well as another $100 billion of bonds issued by mortgage giants Fannie Mae and Freddie Mac. Combined with earlier purchases, the new plan will bring the Fed's total purchases of mortgages and agency debt to $1.45 trillion in 2009.

That sounds like a big number, but everyone knows that the mortgage market is huge. How significant is $1.45 trillion?

The Mortgage Bankers Association announced yesterday that it expects mortgage originations to total $2.78 trillion in 2009. That means that the Fed will be providing more than half of the capital used to create new mortgages or to refinance existing mortgages this year.

Without the Fed's intervention, the housing market would be in much, much deeper trouble.