WASHINGTON - The Federal Home Loan Bank system won permission yesterday to double the amount of capital that it can spend to purchase mortgage bonds in an effort to boost home lending and revive the nation’s housing market.

The Federal Housing Finance Board approved a plan that would allow the 12 privately funded, government-sponsored Federal Home Loan Banks that the system regulates to purchase about $100 billion in mortgage bonds during the next two years.

The Home Loan Banks, created after the Great Depression to boost mortgage lending and community investment, will snap up more newly issued mortgage bonds, or securities, which are packaged by the government-sponsored enterprises Fannie Mae and Freddie Mac.

The effort supports the sagging housing market by ensuring that there’s enough cash in the system so that lenders are willing to lend and borrowers are able to borrow.

"The targeted decision by the Federal Housing Finance Board to enable the Federal Home Loan Banks to assist temporarily in a period of stress … will bring more liquidity to the mortgage market," Secretary of the Treasury Henry Paulson said in a statement.

As the national housing crisis worsened last year, the Federal Home Loan Bank system increased its lending to member banks, savings and loan associations and credit unions. It lent $800 billion last year.

Banks no longer hold most home loans on their books but sell them into a secondary mortgage market instead, where they’re bundled with other home loans and sold as bonds to investors. This process is called securitization, and much of it is done by Fannie Mae and Freddie Mac.

When the nation’s housing market began skidding in late 2006, investors’ appetite for mortgage bonds dried up. Banks, credit unions and thrifts have been stuck with loans or have been unwilling to underwrite much new mortgage lending because home loans can’t be securitized easily when there aren’t willing investors.

"The lack of investment in mortgage-backed securities has exacerbated the credit crunch for families looking to buy homes, as well as for existing borrowers looking to refinance into more affordable loans," Kieran Quinn, the president of the Mortgage Bankers Association, said in a statement welcoming yesterday’s action.

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