FED Thinking of Rewriting Mortgages

I'm glad the FED is now thinking of entering the mortgage work-out business.

Under the program, the Fed has a number of options to provide relief, including lowering the amount the homeowner owes on the mortgage, reducing the interest rate or lengthening the term of the loan.

It's unclear how many homeowners would benefit. However, the relief plan would apply to the billions of dollars of mortgage assets the Fed is holding on its books because of last year's bailouts of Bear Stearns and insurer American International Group.

I guess they can do that because they actually own these mortgages so they can do whatever they want to them to keep people out of foreclosure. I guess it is the FED equivalent of changing someones interest rate on a credit card. This was kind of funny though:

The Fed's Bear Stearns' portfolio is valued at $27 billion, although the central bank doesn't say how much of that is in home mortgages. The Fed's AIG assets include one portfolio valued at nearly $20 billion of residential mortgage-backed securities and a second portfolio valued at nearly $27 billion of collateralized debt obligations, which are complex financial instruments that combine various slices of debt.

I wonder how many of the home mortgages that the FED owns are covered by that $20 billion in mortgage backed securities? If it is a large amount then they are working both sides of the trade. They fix the mortgages by changing the interest rates or decreasing the amount that the person owes and then they reap the benefits when the security goes back up due to the reduction in default risk. Oh the power of a monopolist bank.