Market Crisis And Its Effects On The Housing Market

1460 Words6 Pages
According to Fligstein, the next step in market formation was crisis. In The Architecture of Markets he states, “market crisis is first observed when incumbent organizations begin to fail.” From 2007-2009, the housing market crashed as the value of homes in the US fell drastically. As a result, many homeowners began defaulting on their mortgages causing huge problems for those involved in the mortgage securitization market. On September 7th, 2008 when the Federal Housing Finance Agency (FHFA) place both Fannie Mae and Freddie Mac under government conservatorship. In addition, the US Department of Treasury agreed to inject up to $100 million into each GSE in order to provide liquidity and to continue purchasing mortgage-backed securities in the market. This would slow the US housing market’s downward spiral. In return, the government would be able to purchase 80% of Fannie Mae and Freddie Mac. The goal of these policy responses was to provide stability to the financial market and support the availability of mortgage finance. As of 2008, both Fannie Mae and Freddie Mac held $5.5 trillion in mortgage debt so preventing them from collapsing was at the forefront of tasks for the government. The actions of the FHFA and Treasury stabilized both agencies by guaranteeing their mortgage-backed debt. As previously stated, the first step in stabilizing the mortgage finance market was to place both Fannie and Freddie
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