Freddy Mac Research Paper

However, hope might be on the horizon for the victims of the mortgage disaster of 2007/2008. Home buyers who were foreclosed upon years ago, or boomerang buyers, are beginning to be eligible to buy homes again. While some feel hope after feeling bamboozled by lenders and Fannie Mae and Freddie Mac, some feel anxious and fearful of the thought of buying again. Yet there are lessons that have been learned by the mortgage meltdown. Fannie Mae and Freddie Mac provided a lesson for the

Ginnie Mae, Frannie Mae, and Freddie Mac were U.S. government agencies that guaranteed various types of mortgage loans. They allowed mortgage lenders to obtain a better price for their mortgage loans in the securities market. Lenders used the proceeds to make new mortgage loans available.

The financial crisis emerged because of an excessive deregulation of business operation of financial institutions and of abusing the securitization mechanism in the absence of clearly defined rules to regulate this area in the American mortgage market (Krstić, Jemović, & Radojičić, 2013). Deregulation gives larger banks the opportunity to loosen underwriting lender guidelines and generate increase opportunity for homeownership (Kroszner & Strahan, 2013). After deregulation, banks utilized many versions of mortgage loans. Mortgage loans such as subprime and Alternative-A paper loans became available for borrowers challenged to find mortgage lenders before deregulation (Elbarouki, 2016; Palmer, 2015). The housing market has been severely affected by fluctuating interest rates and the requirement of large down payment (Follain, & Giertz, 2013). The subprime lending crisis has taken a toll on the nation’s economy since 2007. Individuals who lacked sufficient credit ratings or down payments resorted to subprime mortgages to finance their homes Defaults on subprime and other mortgages precipitated the foreclosure crisis, which contributed to the recent recession and national financial crisis (Odetunde, 2015). Subprime mortgages were appropriate for borrowers with substandard credit and Alternate-A paper loans were

The Federal National Mortgage Association, referred to as “Fannie Mae”, was founded as a government sponsored entity

It is necessary to first explain what Thomas Sowell an economics scholar says “The cast of characters” (Sowell 2). The nature of the housing market makeup is much more than just a bank issuing loans. The importance is to understand what lies behind the scene and from there comprehend the causes of the housing crisis. The Federal Reserve System in general regulates banks across the county. The Federal Reserve also has power to “take action which affect interest rates and the money supply” (Sowell 2). The Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation are “two government-created, but privately owned, profit-making enterprises that buy mortgages from banks” (Sowell 3). The Federal National Mortgage Association is also known as Fannie Mae, and the Federal Home Loan Mortgage Corporation is also known as Freddie Mac. These Associations as stated above buy loans from banks, which ultimately eliminates the banks wait for 30 years of monthly payments. According to book The Housing Boom and Bust “Fannie Mae and Freddie Mac purchased more than one-third of all the mortgages in the nation that were resold by the original lenders.” The U.S. Department of Housing and Urban Development is another major entity in the real estate housing market. The U.S. Department of Housing and Urban Development is also known as (HUD) and “exercises authority over Fannie Mae and Freddie Mac,

The Federal Reserve had began lowering interest rates from 6.5% in the late 2000, all the way down to 1% in November of 2003 and kept it there until June of 2004. These artificially low interest rates encouraged consumers to buy houses and builders to produce more houses. However, the low interest rate was not an accurate reflection of the true demand for houses in the marketplace. At the same time, Congress amended the Community Reinvestment Act, encouraging banks to offer mortgages to lower income borrowers who would ordinarily not qualify for a loan. In addition, the Federal Government required Fannie Mae and Freddie Mac, the now two infamous government sponsored lenders, to provide over half their mortgages to low-income buyers, also known as subprime mortgages. Essentially, this meant that banks and other mortgages lenders were told to relax their lending standards, and provide mortgages to people who

Real estate finance in the modern community is changing the perspective of modern lending and purchases. It is a means to contemporary community’s ability to develop a foundation for discussing the nature and means of public spending and purchase. As a self-government sponsored agency, Federal National Mortgage Association (FNMA) also known as Fannie Mae works with the ultimate responsibility of lending and buying secondary mortgages in the market (Oesterle, 2010). It helps in the conservation of interest rates in the real estate business in the contemporary community. There is also the need for focusing on the impacts of the Fannie Mae on real estate finance. The approach of the Fannie Mae helps lenders to use the money gained from the secondary

"The Wall Street Journal" found that the current bond yields were 0.20. These bonds are issued by the US government. In view of the fact that Fannie Mae Securities is a mortgage-backed securities issued by FNMA. We have observed that Fannie Mae and Treasury yields are somewhat different because FNMA Personal Securities and Treasury bonds are issued by the US government. Therefore, we note that there should be some difference between the two rates. As a result, Fannie Mae gets money from investors and financial institutions and sells their mortgages.

During the great depression in 1934 many people didn’t have jobs. Not having jobs meant that it would be awfully hard for them to obtain a loan from banks in order to purchase homes. The government decided to help the American people by creating the Federal Housing Administration (FHA) which basically stepped in and allowed banks to offer mortgages to more people with the promise that the banks would get their money back. The FHA finances itself with insurance premiums that they charge borrowers as well as interest that they receive on reserves. They use these funds to underwrite more loans which helps out people with their mortgages.

Fannie Mae and Freddie Mac are government sponsored enterprises (GSE) that purchase mortgages, buy and sell mortgage-backed securities (MBS), and guarantee nearly half of the mortgages in the U.S. A variety of political and competitive pressures resulted in the GSEs ramping up their purchase and guarantee of risky mortgages in 2005 and 2006, just as the housing market was peaking.[258][259] Fannie and Freddie were both under political pressure to expand purchases of higher-risk affordable housing mortgage types, and under significant competitive pressure from large investment banks and mortgage

This corporation was created not only to enhance the competition in the secondary mortgage market (Acharya, Richardson et al. 2011), but also to securitize mortgages, as Dodd (2007) mentions. The process of pooling mortgages and selling mortgage-backed securities (MBS) was developed, initially, by Ginnie Mae to reduce debt from the federal budget; the concept of securitization is discussed analytically later. The following years, MBS and securitization assisted GSEs to provide long-term funding in the US secondary mortgage market eliminating liquidity risk from originators while bearing both the credit and the interest rate risk (Dodd, 2007, Wall et al., 2005). The securitization could obliterate the interest rate risk from housing enterprises, as

The Consumer Financial Protection Bureau (CFPB) came about as a result of the Dodd–Frank Wall Street Reform and Consumer Protection Act. CFPB merged many responsibilities of several federal agencies to their central regulatory body. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 was put in place to help promote financial stability for American borrowers and impose accountability and regulation of financial institutions. In 2007, interest rates went up and the value of homes stopped increasing at the extremely fast rate that they had in the past number of previous years, which caused many people to become behind on their mortgages or be foreclosed on. While interest rates were low and the value of homes was increasing drastically, many people decided to get second mortgages.

Q3. The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are Government Sponsored Entities (GSEs). These are mortgage and loan associations backed by the government but are not part of the government itself. They are financial intermediaries that purchase residential mortgage loans from originators and either hold the loans in their own portfolios or package them as mortgage-backed securities (MBS) to be

The banks then created a new idea—linking investors to homeowners through mortgages. Ordinarily, a mortgage broker would connect a house-buying family to a mortgage lender, who would then supply them with a mortgage. In this system, everyone is happy—the mortgage broker earns a handsome commission, the mortgage lender earns a new mortgage, and the family is now a homeowner in a market of increasing housing prices.

FannieMae is a company that makes capital by lending money to people who need mortgages and by borrowing money at low interest rates. FannieMae is able to make money in any kind of economy. During times of low interest rates they make money on people who bought fixed rate mortgages at a time of high interest rates. They also have a hard making money during this time because their marginal percentage is smaller and they make less of a profit. During times of high interest rates, they lose money on people who bought fixed rate mortgages at low interest rates. They also make a lot of assets during this time because they borrow from the federal reserve or banks at lower interest rates and lend