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Tuesday, July 14, 2009

Prosper's SEC Registration Declared Effective

SAN FRANCISCO, July 13, 2009 – Prosper, a leading online destination for borrowing money and investing in personal loans, today announced the successful completion of its registration process with the Securities & Exchange Commission (SEC). As a result, America's largest peer-to-peer (P2P) loans marketplace has resumed for borrowers nationwide and lenders in 14 states with others soon to follow1. Prosper is the first Internet auction-based P2P loans platform to have its registration statement declared effective by the SEC — a move that marks a significant breakthrough for the P2P lending industry.

Prosper's SEC registration statement also covers the first Internet auction-based trading platform (sometimes referred to in financial circles as a "secondary market"), which makes it possible for Prosper lender members to sell their Prosper Notes to other individual and institutional investors. The note trading service is provided by Foliofn Investments, Inc., through their Folio Investing Note Trader platform.2

Prosper first introduced the concept of people-to-people lending in the U.S. when it launched in 2006. The goal was to create a platform where people could invest in each other in a way that was socially and financially rewarding. The concept quickly caught on. From the time Prosper launched up until the time it entered an SEC registration quiet period in October 2008, Prosper had grown to more than 800,000 members and facilitated approximately $180 million in personal loans, making Prosper the largest peer-to-peer loans marketplace in the world.

"With the financial system in crisis, P2P lending — Americans investing in fellow Americans and small businesses — is needed now more than ever," said Chris Larsen, CEO and co-founder of Prosper. "It has been extremely frustrating to be on the sidelines in the teeth of a credit crunch. Nevertheless, we believe that completion of the SEC registration process for our auction-based model — a model that we believe is an extraordinarily powerful tool for fair price discovery for everyone involved in the transaction — is a major watershed for the industry."

A competitive auction marketplace, combined with loan-level transparency and extensive credit and social data, allows Prosper lenders to fine-tune their bidding decisions. Prosper has enhanced its auction model to include a hard bid floor for each listing, which helps lenders appropriately price for risk while investing online. The bid floor for each listing is calculated by adding the national average certificate of deposit rate that matches the term of the borrower loan to the minimum estimated loss rate assigned to each listing.3 For example, an A-rated listing with a minimum estimated loss rate of 2.0% is added to a national average certificate of deposit rate of 2.27%, resulting in a bid floor of 4.27%.

In addition to the new bid floor, more layers of safety and vigilance have been added to the marketplace. Prosper has lowered its minimum bid requirement to $25 (previously $50), which should make it easier for smaller lenders in particular to diversify. Prosper has introduced Prosper Ratings — an improved credit grading system for loan listings — and now requires borrowers to meet the new minimum credit score requirement of 640 (previously 520). Prosper Ratings are based on the historical loan performance of 29,000 Prosper loans and are designed to better convey risk.

Prosper believes the new Prosper Rating system, combined with the new minimum 640 credit score requirement and enhanced auction model, will make analyzing risk simpler and more robust than ever. A review of historical returns since inception based on the improved risk rating and credit segmentation system determined Prosper lenders' return on investment ranges from 7.19% for loans with a AA Prosper Rating to 4.59% for loans with an E Prosper Rating.4

About Prosper
Prosper Marketplace Inc. is a leading online destination for borrowing money and investing in loans. It pioneered direct peer-to-peer loans, which allow people to invest in each other in a way that is socially and financially rewarding. Additionally, Prosper's auction model provides an open and transparent way to borrow or invest in consumer loans on terms that are favorable to everyone involved in the transaction. More than 800,000 people from across the country are part of the Prosper peer-to-peer lending community. Since launching in February 2006, approximately $180 million in loans have been funded in the marketplace.

Prosper was co-founded by Chris Larsen, co-founder of E-LOAN. Backed by Accel Partners, Benchmark Capital, DAG Ventures, Fidelity Ventures, Meritech Capital, and Omidyar Network, Prosper has raised approximately $40 million in venture capital.

About Folio Investing
Folio Investing is an online brokerage that enables investors to manage stocks, ETFs, and mutual funds as integrated investment portfolios ("Folios") that deliver better control, greater transparency, and lower cost. Investors can create their own Folios, much like creating personalized ETFs or mutual funds, or invest in over 100 Ready-to-Go Folios representing market indices, sectors, geographical regions, target dates, and more. The Folio Unlimited Plan features unlimited commission-free trading in twice-daily windows for one low monthly fee. Ready-to-Go Folios can be managed or unmanaged and are offered by FOLIOfn Investments, Inc., a registered broker dealer, and are not registered investment companies. FOLIOfn Investments, Inc. does not provide investment, tax, or legal advice. FOLIOfn Investments, Inc., is a member of FINRA/SIPC. For more information, please visit www.folioinvesting.com
Press Contact: Tiffany Fox Prosper Communications Director 415 593 5416 tiffany@prosper.com

Forward-Looking Statements:
This press release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. The words "anticipate," "believe," "estimate," "expect," "intend," "may," "plan," "predict," "project," "will," "would" and similar expressions may identify forward-looking statements, although not all forward-looking statements contain these identifying words. These forward-looking statements may include, among other things expected rates of return and interest rates; the anticipated success and attractiveness of Prosper's lending platform; and the benefits of Prosper's lending platform as compared to other existing alternatives in the marketplace. Although Prosper believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected and the past performance of Prosper loans is no guarantee of future results. For example, Prosper may not actually achieve the plans, intentions or expectations disclosed in forward-looking statements, and you should not place undue reliance on forward-looking statements. Prosper has included important factors in the cautionary statements included in the prospectus, particularly in the "Risk Factors" section, that could cause actual results or events to differ materially from forward-looking statements. Prosper does not assume any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

1Prosper is currently available to lenders in California, Colorado, Delaware, Georgia, Illinois, Minnesota, Montana, Nevada, New York, South Carolina, South Dakota, Utah, Wisconsin, and Wyoming. Borrowing is permitted in the District of Columbia and all states except Iowa, Kansas, Maine, and North Dakota.

2Folio Investing is registered trademark of Foliofn, Inc. Securities products and services offered through FOLIOfn Investments, Inc. Member FINRA/SIPC.

3The national average certificate of deposit rate is a proxy for a risk free consumer rate and is published daily by BankRate.com. The national average certificate of deposit rate that matches the term of the borrower loan will be used. For a listing that results in a three year loan the three year national average certificate of deposit rate will be used. The risk free rate will be updated on the third business day of each month based on the certificate of deposit rate published on BankRate.com on the first business day of each month.

4Return on investment as of June 30, 2009. Not FDIC-insured; Investments may lose value; No Prosper or bank guarantee. Prosper Notes are offered by prospectus.

The Economy is Even Worse Than You Think (from WSJ.com)

I read with great interest a recent opinion piece from Mortimer Zuckerman (what a great name) of the US News and World Reports. The title of this piece is "The Economy is Worse Than You Think" and is on WSJ.com if you want to read the whole article.

In a nut shell, he makes a number of important points that are often overlooked by the media and politicians (mainly because the news is NOT good). Here are a couple of excerpts:

"...reasons we are in even more trouble than the 9.5% unemployment rate indicates:

- The number of workers taking part-time jobs due to the slack economy, a kind of stealth underemployment, has doubled in this recession to about nine million, or 5.8% of the work force. Add those whose hours have been cut to those who cannot find a full-time job and the total unemployed rises to 16.5%, putting the number of involuntarily idle in the range of 25 million.

- The average work week for rank-and-file employees in the private sector, roughly 80% of the work force, slipped to 33 hours. That's 48 minutes a week less than before the recession began, the lowest level since the government began tracking such data 45 years ago. Full-time workers are being downgraded to part time as businesses slash labor costs to remain above water, and factories are operating at only 65% of capacity. If Americans were still clocking those extra 48 minutes a week now, the same aggregate amount of work would get done with 3.3 million fewer employees, which means that if it were not for the shorter work week the jobless rate would be 11.7%, not 9.5% (which far exceeds the 8% rate projected by the Obama administration).

- The prospects for job creation are equally distressing. The likelihood is that when economic activity picks up, employers will first choose to increase hours for existing workers and bring part-time workers back to full time. Many unemployed workers looking for jobs once the recovery begins will discover that jobs as good as the ones they lost are almost impossible to find because many layoffs have been permanent. Instead of shrinking operations, companies have shut down whole business units or made sweeping structural changes in the way they conduct business. General Motors and Chrysler, closed hundreds of dealerships and reduced brands. Citigroup and Bank of America cut tens of thousands of positions and exited many parts of the world of finance.

Job losses may last well into 2010 to hit an unemployment peak close to 11%. That unemployment rate may be sustained for an extended period."

In summary, the news is not very good. Government, businesses and individuals would be wise to take head of this data and evidence and make any necessary budgetary now. I would like to see the Obama administration start by focusing more attention (and tax dollars) on economic policies rather than healthcare and the environment, among other secondary objectives. While these issues are very important, the success of any reforms in these areas is ONLY possible if we have a strong economy. Thank you, Mr. Zuckerman, for your great analysis.

Wednesday, July 8, 2009

Porkulous or Stimulus (Update)

Earlier this year (February to be exact), I wrote a piece (check it out here) about the "stimulous" plan that the newly inaugurated Obama administration crammed...er...passed into law. Needless to say, I cast a skeptical eye on the bill as it simply had way too much government waste included in it AND the money did not flow fast enough to give the economy the jolt it desparately needed. It is now becoming even more clear that the Obama administration did not pass the best bill possible as the economy remains in the tank, unemployement continues to increase (and the rate of unemployment is rapidly approaching double digits) and there is some loose talk of yet another "stimulous" plan (seriously, this is no joke)! Check out the recent interview on CNBC with Art Cashin of UBS ("stimulous is part Hoax..." WOW!):















To shed a bit more light on this, Joe Biden recently admitted that he and Obama "mis-read" how bad the economy was (here is one of the many news stories on the topic). It's somewhat laughable that he can suggest this and get away with it! Don't you recall all of the speeches about how this was the worst economy since the Great Depression (hard to say they mis-read it, eh)? Here's one example from a January 2009 speech from Obama (read the entire speech via the link):

"Throughout America’s history, there have been some years that simply rolled into the next without much notice or fanfare. Then there are the years that come along once in a generation – the kind that mark a clean break from a troubled past, and set a new course for our nation. This is one of those years. We start 2009 in the midst of a crisis unlike any we have seen in our lifetime..."

That sounds pretty dire! Well, the economy IS pretty bad (it's at least as bad as the early 80's and maybe worse than that) and I just don't buy that they "mis-read" it when, speech after speech, Obama talked about the "worst economy since the Great Depression." I think it's more likely that Biden and the Obama administration continue to try convince the American people that none of this is their fault even after they've ramped up government spending and passed an enormous spending bill with a "Stimulous" title on it. To be fair, they did inherit a pretty lousy situation and things were clearly getting worse when he took office. But, the American people are tiring of the blame game (Obama's approval rating is down to the low 50% range when it was in the mid to upper 60% range when he took office) and the ineffectual nature of Obama's economic proposals to date (trends in his approval rating prove this out - click here for Rasmussen data).

We were sold this "stimulous" package on the promise that it was necessary to turn things around and that it would bring us out of a tailspin. Unfortunately, it now appears that we were sold a bill of goods (don't say I didn't warn you in the February 2009 blog post).

I sincerely hope that Obama will refocus on what really matters right now (HINT: "IT'S THE ECONOMY, STUPID!!!") and drop plans for massive spending on healthcare and taxes green house gases (aka Cap and Trade). Making the case that we can't fix the economy unless we fix healthcare and the environment just doesn't make any sense. Let's get this economy going BEFORE dealing with these other issues. After all, if the economy (aka current and future tax base) continues to shrink, we definitely won't be able to afford any of these other initiatives.

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Monday, April 6, 2009

That’s Fuzzy Math: Why Obama’s Budget Doesn’t Add Up for Future Generations

Michael Boskin, a well-respected professor of economics at Stanford University and a senior fellow at the Hoover Institution recently wrote an eye-opening piece on the future debt and taxation implications on President Obama’s 2010 budget plan. For anyone that’s been paying attention, it’s no surprise that the President’s budget calls for running substantial deficits indefinitely. It’s completely fair to note that President Obama inherited a bad economy and an already mind-popping budget deficit. But, what I found so interesting about Mr. Boskin’s analysis is that he sheds some light on Obama’s contribution to our future debt problems. Mr. Boskin asks the simple question, “What would happen to budget deficits and the national debt if Obama did not institute his new government programs?”

Well, the result of Mr. Boskin’s analysis are staggering. Yes, Mr. Boskin was an advisor to President George H.W. Bush (aka Bush 42). However, let’s say for a second that Mr. Boskin is off by 25%. You are still talking about a tax burden of over $120,000 per taxpayer. I don’t know about you, but I don’t have that kind of money laying around. Below is a summary of the implications of this study. Check out the entire article via the link below at WSJ.com. No matter who you voted for in November 2008 and no matter who you support today, it is critical that ALL AMERICANS understand what the government is signing us up for in terms of future debts and taxes.

“What does $6.5 trillion of additional debt imply for the typical family? If spread evenly over all those paying income taxes (which under Mr. Obama's plan would shrink to a little over 50% of the population), every income-tax paying family would get a tax bill for $163,000. (In ten years, interest would bring the total to well over $200,000, if paid all at once. If paid annually over the succeeding ten years, the tax hike per year would average almost $26,000.) That's in addition to his explicit tax hikes. While the future tax time-bomb is pushed beyond Mr. Obama's budget horizon, and future presidents and Congresses will decide how it will be paid, it is likely to be paid by future income tax hikes as these are general fund deficits.”

Read the entire article at WSJ.com.

Thursday, February 12, 2009

Porkulous or Stimulous (or a little of both)?

As everyone is no doubt aware, Congress announced an agreement on the nearly $800 billion spending bill that is intended to try to kick-start the economy. There has been much debate about this bill, specifically around whether it is true stimulous or is porked up good with lots of pet projects. I think it's fair to say that there is a lot of both in the bill - after all, it is $800 billion!!! Just to put this into context, that's approximately $2,700 per US resident or about $7,200 per family! WOW. Or, put another way, that's enough money to buy the following companies at current market caps:

IBM - $127B,
Microsoft - $171B,
General Electric - $122B,
WalMart - $189B,
McDonalds - $63B,
Wells Fargo - $71B, AND
Intel - $78B.

That's a lot of coin! So, the bigger question is "Will it help?" Unfortunately, this answer is about as clear the TARP 2 as outlined earlier this week by our new Treasury secretary.

Well, just for fun, I thought I would include a snippet from a recent FoxNews.com article that outlined some of the items in the report. I'm not so sure this is all "stimulous" but I will let you be the judge. Of course, there are some good things in this bill including allowing small business to deduct capital expenditures more quickly, tax credits for purchasing cars and houses, spending on roads, bridges and other infrastructure, and other truly stimulative things. But, it's laughable to say that $100 million for the Lead-Based Paint Hazard Control Grant Program is meant to stimulate anything (except for the lobbiest that won this concession).

- a provision to provide up to $198 million in pensions for Filipinos who fought alongside the U.S. during WWII. U.S. citizens would get $15,000 a year, but even non-citizens would still get $9,000 a year

- NASA is set to receive $450 million for "Science" and another $200 million for "Aeronautics"

- More than $28 billion is being provided to put kids in special education, Head Start and child care and development programs for disadvantaged children.

- $100 million for the Lead-Based Paint Hazard Control Grant Program

- $200 million to the Leaking Underground Storage Tank Trust Fund Program
- $300 million for "Violence Against Women Prevention and Prosecution Programs"
- $900 million for the IRS for the "Limitation on Administrative Expenses"
- $1 million for the Railroad Retirement Board for administrative costs
- $2 billion for the Drinking Water State Revolving Act
- $50 million for Health and Human Services to carry out injury prevention programs
- $1.1 billion for studies on the effectiveness of different medical treatments
- $200 million to upgrade labs and facilities for the Department of Agriculture "to improve workplace safety and mission-area efficiencies"
- $10 million for urban canal inspection
- $16 billion to pay for student financial aid
- $1 billion to pay for the U.S. Census
- $600 million to pay for a fuel-efficient federal auto fleet
- $650 million for the Digital Converter Box Program to help the constantly delayed transition from analog television
- $485 million to the Forest Service for "hazardous fuels reduction and hazard mitigation activities in areas at high risk of catastrophic wildfire"
- Up to $1 billion for "summer activities" for youths as old as 24
- $40 million for the occupational research agenda
- $3 billion for the Centers for Disease Control wellness programs and vaccinations
- $410 million for Indian health facilities
- $2.4 billion for carbon-capture demonstrations

So, what do you think - is that true stimulous? You may like Obama or not and you make like this bill or not. BUT, at least you should know what's in it. After all, YOU are going to have to pay for it...eventually!

Monday, December 8, 2008

SHOCKING MORTGAGE REVELATION!!!

In news that will SHOCK the country, people that made poor financial decisions over the last 24 months continue to make poor financial decisions (and they are still not paying bills on things they still can't afford). In a Reuters article whose conclusion is just entirely too predictable, the government is reporting that borrowers that stopped paying their mortgages once, are doing so again!!! Shocking, I know.

OK, so that's my poor attempt at blogging sarcasm, but you get the point. Why would anyone expect "loan modifications" to be successful? Sure, they may help some fraction of the folks that are having a tough time and were legitimately scammed by predatory lenders, but the simple fact is that there were WAY TOO MANY people buying homes that should have never bought a home in the first place (most of them are not bad people, they just were not ready to take on the responsibility of owning a home). So, as I've predicted many times in the past, loan mods just won't work for most loans because the people that should have never bought a home in the first place still own a house they still can't really afford!!!

Since when did renting gain such a stigma? There is nothing wrong with renting a place and making it your home. We (the politicians especially) got a little caught up in this whole home ownership/american dream thing and we are now paying for it in the financial, real estate, business and every other market you can name. In what many of you may see as a bit of a stretch (but, I honestly believe it), Americans forgot that the American Dream revolves around EARNING things and not being given things (that whole sense of entitlement thing). What happened to saving for a 20% down payment before buying a house? If someone can work hard and save 20% (or even 10-15% fo that matter), they're not only putting a lot of "skin in the game" but they've also demonstrated financial management skills (i.e. they are likely to be very good credits). If we'd adhered to this very basic standard alone, we would not be in the mess that we are in! It sounded great that you could buy a house with only your good name and your word (stated income or "liar's" loans as they're now called), but it was all too obvious what would happen (people would stretch the truth...or simply lie to get what they wanted - a house they could not afford). Now, since we have not learned our lesson, let's give people something for nothing yet again - e.g. freebies to show them that defaulting on a loan ACTUALLY HAS A REWARD!!!!

So, let me summarize why this is such a silly policy:

1) people that should have never bought a house still own houses
2) the resultant homeowners STILL have no skin in the game (formerly known as a down payment); and, most importantly,
3) defaulting borrowers ARE BEING REWARDED for defaulting!

It's quite easy to see that people are going to continue to default until they stop getting freebies. I have several friends who are thinking of defaulting on their mortgages just so they can renegotiate with the bank! If this kind of silly policy continues, the downward cycle we are now in will only last longer and be more painful than it has already been. I really hope that does not happen. Wake up, Washington!!!

Let's wise up!

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Wednesday, November 26, 2008

Early Christmas Present from the Fed: Refinance NOW!

As you may or may not know, mortgage rates have plummeted over the last couple of days on the news that the Fed is going to be buying $500 billion (about 10% of the entire market) worth of mortgage backed securities. So, now could be the best chance you will have in the next couple of years to refinance your mortgage. PLEASE consider locking yourself into a fixed-rate mortgage. You will sleep better, I assure you.

Here is a run down of what's happening from our friends at Bankrate.com.

Fed will buy $500 billion in securitized home loans
By Holden Lewis• Bankrate.com

Mortgage rates plunged after the Federal Reserve announced that it would buy up to $500 billion of securitized home loans.

Rates on 30-year, fixed-rate, conforming mortgages fell well below 6 percent after the Fed announced Tuesday morning that it would buy up to a half-trillion dollars' worth of mortgage-backed securities over the next year to year-and-a-half. Bankers and brokers say rates fell as far as 5.25 percent, at least for a while. Last week, the 30-year fixed averaged 6.33 percent in Bankrate's weekly survey.

The rate reduction is exactly what the Fed intended: "This action is being taken to reduce the cost and increase the availability of credit for the purchase of houses, which in turn should support housing markets and foster improved conditions in financial markets more generally," the central bank said in its announcement.

"It's pandemonium around here right now," says Bob Walters, chief economist for Quicken Loans. "This is going to have a major effect on refinancing opportunities and it should absolutely translate into increased home buying."

Walters offers a hypothetical example of a California house that has lost $175,000 in value over the last couple of years. In 2006, a borrower would need a $500,000 mortgage to buy the house; today, a borrower would need $325,000.

Two years ago, the average rate on a 30-year fixed was about 6.5 percent. At that rate, the principal and interest on a half-million-dollar loan was $3,160 a month. Now, if someone borrowed $325,000 at 5.5 percent, the monthly principal and interest would be a more affordable $1,845.

The Fed's action helps not only buyers, but also homeowners with adjustable-rate mortgages who want to refinance into fixed-rate loans.

Government gift
The mortgage and real estate industries look upon the announcement as a gift from Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson.

"Wow," says Jim Sahnger, mortgage broker with Palm Beach Financial Network, in Stuart, Fla. "I don't know who invited Bernanke and Paulson to Thanksgiving, but I'm glad they did! They showed up with the equivalent of a 50-pound bird and all the fixin's today, ready for the table."
He suggests that borrowers apply for loans and lock rates quickly, in case rates rise again or home values continue to fall. Declining home values can endanger owners' ability to refinance. Sahnger advises homebuyers to talk to mortgage brokers or loan officers early in the process, to identify "any issues you need to deal with prior to writing a contract," such as errors on credit reports.

Ryan Kennelly, a mortgage banker for Residential Mortgage Services, Inc., of Bedford, N.H., says the Fed's action is huge, for two reasons. "First, with lending institutions getting the much-needed support of the U.S. government, they (lenders) will ease some of their most restrictive lending rules -- opening the door to more consumers to get loans," he says, adding that more qualified borrowers means more home sales.

Second, Kennelly says, "this news also couldn't be better for current homeowners who want to stay in their homes but can no longer afford the payments due to their adjustable-rate mortgage increasing. By interest rates coming down, combined with lenders easing some of their qualification requirements, more and more homeowners in this situation will be able to refinance."

Dan Green, a mortgage broker for Mobium Mortgage in Cincinnati, calls the Fed's purchase plan "an explicit safety net for lenders, and that should encourage more lending."

The Fed's decision to cut mortgage rates won't help people who can't refinance because they owe more than their houses are worth. And people who already are two or three months' behind on their home loans probably won't get much out of it, either, says Dean Baker, economist for the Center for Economic and Policy Research, a Washington think tank.

Lack of transparencyBaker worries about lack of accountability or transparency: The Fed and the Treasury have not disclosed details about their purchases under the Troubled Asset Relief Program, setting a precedent for secrecy about the Fed's purchases of mortgage debt under the plan announced Tuesday. "We don't know who they're going to be buying bonds from, or how much they'll pay -- or if they'll overpay," Baker says, adding that if the Fed pays a dollar for a security that's worth 20 cents, "that's the same as handing (the seller) 80 cents." Baker adds: "I think it takes a lot of gall to do something like this."

Green says that there is an element of moral hazard in the Fed's action: In the future, borrowers might expect a bailout from the unintended consequences of this action. Nevertheless, the Fed's buying binge might be the best way out of a dilemma. "On moral hazard, some say it led to the bubble. It may now lead the economy back," Green says, koan-like.

Yields fall, mortgage rates do too
By buying mortgage-backed securities, the Fed will be taking direct action to reduce mortgage rates. That's because mortgage-backed securities behave like bonds. When bond prices rise, their yields fall. A wonkish detour into the behavior of bonds will illustrate this point.

A bond is an IOU. Let's say you lend someone $100 and the borrower gives you a piece of paper, promising to give you $105 a year from now. That paper is a $100 bond with a 5 percent yield. The yield is equivalent to an interest rate. Now assume that the government stepped in and offered to give the borrower a better deal: $102 now in exchange for $105 a year from now. The bond's yield would be roughly 3 percent. That's how the bond's yield gets lower as the price gets higher.

The Fed says it's going to be that buyer who pays a higher price for the bond, causing the yield to drop. As the yields on mortgage-backed securities fall, consumers generally see mortgage rates fall, too.

By pledging to buy up to $500 billion in mortgage-backed securities over the next 12 to 18 months, the Fed is signaling that it's ready to buy a big share of the conforming mortgages underwritten during that period. That could keep bond yields and mortgage rates down. So far this year, Fannie and Freddie have issued about $857 billion in mortgage-backed securities, and the issuance pace has slowed dramatically in recent months.

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