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Fixed mortgage rates in the USA fell to a record low for the second consecutive week, signaling that Federal Reserve Chairman Ben Bernanke’s effort to spur the housing market is gaining traction. The 30-year rate dropped to 4.78% from 4.85% a week prior, the lowest since records began in 1971, Freddie Mac said today in a statement. Rates are falling to historic lows as the Federal Reserve ramps up purchases of mortgage-backed bonds to support home lending. Mortgage applications in the U.S. rose for a fourth consecutive week as a decline in borrowing costs prompted more refinancing. “Lower rates will help increase demand for homes,” said Celia Chen senior director at Moody’s Economy.com in West Chester, Pennsylvania. “We need to see stronger demand for homes to help end the housing correction.” The Fed’s efforts to expand lending “should make new consumer, business, and mortgage loans more available, at lower cost,” Bernanke said in a March 20 speech to a Phoenix banking conference.

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The US Treasury Department is expected in the coming week to roll out its long-delayed plan to buy as much as $1 trillion in troubled mortgages and related assets from financial institutions, according to people close to the talks. The plan is likely to offer generous subsidies, in the form of low-interest loans, to coax investors to form partnerships with the government to buy toxic assets from banks, and to help protect taxpayers, who would pay for the bulk of the purchases, the plan calls for auctioning assets to the highest bidders. The plan is not expected to impose restrictions on the executive pay of private investors or fund managers who participate. The three-pronged approach is perhaps the central component of Mr. Obama’s plan to rescue the U.S. banking system from the unprofitable assets weighing down bank balance sheets, crippling their ability to make new loans and deepening the recession

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Toxic assets are non-performing assets that are not only not paying interest but depreciating (losing principal) rapidly, with no likelihood of stabilizing in the current environment. The most common toxic debt talked about or referenced is subprime mortgage debt.

According to some estimates there was about US$1.2T of subprime mortgages written. The reason there is so much toxic debt out in the market on banks and others’ balance sheets is because derivatives actually multiplied the exposure to this toxic asset class.

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4 days ago the US Federal Reserve announced a $600 billion program to buy mortgage-related debt and securities and a $200 billion facility to support consumer debt securities.The U.S. central bank said it would buy up to $100 billion in debt issued by Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. The Fed also said it would buy up to $500 billion in mortgage-backed securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae.

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Technology companies may be the next group swept up in a restructuring wave that began on Wall Street. Purchases of computer hardware, software and services have been affected by the global credit crisis that has slowed lending, and a broad recession as consumers struggle with unemployment and mortgage payments. The economic downturn promises to be severe for technology companies, many of which are laden with debt brought on during the credit boom of recent years. Meanwhile, shares in smart phone maker Palm Inc. fell last Wednesday after an analyst downgraded the stock and questioned in a research report its need for additional capital.

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