There seems to be a confusion of what an MBS is. Mortgage Backed Security is a SECURITY. Its a pool of mortgages that is securitized so it can be traded by investors.
Has nothing to do with the Fed buying property. MBS is a way for banks to get the (illiquid) mortgages off their books and sell to an investment bank, who in turn sell it to investors. The Fed isn't buying MBS to own property, they are buying it to lower lending rates. You don't own any property if you buy MBS you are buying the interest stream. Its a type of bond
http://www.investopedia.com/video/play/what-are-mortgage-backed-securitiesAlso, borrowers aren't in debt because of the Fed. They are in debt simply because they borrowed money. Nobody forces you to borrow money
This is correct. However, by buying up these securities, the FED makes the price of these securities go up (which comes down to making the effective interest rate lower). If securities are in a high demand, getting a loan becomes easy (there's a high demand for the interest rate on the loan). As such, it makes banks holding securities rich, because they can now sell those securities on a market where there are higher prices for it. It is then also tempting to write out loans to people who cannot pay them necessarily back (I'm not 100% sure, but I think that the risk of default goes with the security). That's blowing bubbles in the mortgage market, and increasing indirectly the price of housing and land.
Now, I think the FED is doing the operation post-bubble, to avoid the collapse. The bubble came for another reason, should now have collapsed, and the FED is buying up probably rather worthless securities to limit the bank's losses instead of having them make huge benefits (they thought they made them in the past).
I'm not 100% sure about what I write here, because it is somewhat opaque to me, but that's how I understand the MBS buying campaign. (also called QE).
In fact, the subprime mortgages were a smart move for the borrowers even though they seemed to be the culprit. The subprime borrowers are in fact the people who consumed a lot what they didn't produce, and got the rest of the world in difficulty. What was great for them with the mortgage system, was that their debt was limited to their real estate. As such, they could borrow like crazy (the bubble value of their real estate), and consume all that, and they were not exposed to the full amount of their loan, but only to the limit of their real estate. This was in fact a great cause of moral hazard ! You could make a debt that was going to be limited in any case to a part of your possessions, and the rest was not going to be affected.
Ok, you loose your (worthless) house, but you've been living and consuming like a prince, and nobody can do anything about it.