Essay on Subprime Lending

1808 Words Mar 16th, 2014 8 Pages
Subprime Lending

Discuss in detail the event, the people involved, and its background and impact of America.
Before 1930, features of Housing loans presented significant challenges. To obtain a home loan a down payment of half the value the house was required. Further issues with these loans were large balloon payments and short maturities. The pricing for mortgage loans varied widely due to no nationwide housing market. The main funding for these loans was provided by life insurers, thrifts, and commercial banks.
By 1932, a housing crisis was wreaking havoc on home loans. The estimated defaulted loans were rising to twenty –five percent. In response to this crisis, the FHL Bank System was designed to provide relief to lending
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The Veterans Administration mortgage assistance program was created to help veterans purchase home loan with long term and low cost mortgages. With the purchases of these VA loans, Fannie Mae increased business rapidly.
In the 1950s as the funds started to dwindle Fanny Mae was acquired by the Housing and Home Finance Agency as a constituent unit in 1950. Four years later the Federal National Mortgage Association Charter Act turned Fanny Mae into a mixed-ownership corporation. This exempted Fannie Mae from all taxes except pay property taxes.
The Housing and Urban Development Act of 1968 morphed Fannie Mae yet again. The prior change to a mixed-ownership corporation was voided. HUD made Fannie Mae a for-profit, shareholder-owned company. This took Fannie Mae off the government books and into stock and bond marketing funding. Regulatory authority was given to HUD and required lenders to devote a reasonable portion of their loans to low and moderate- income housing.
HUD affected the housing market a third major way by creating the Government National Mortgage Association. Also known as, Ginnie Mae, which is the only one backed by the government
Ginnie Mae sole purpose is to guarantee bonds backed by home mortgages. These home mortgages have been guaranteed by FHA and the VA. Ginnie Mae does not own or purchase any home mortgages. It bundles several home mortgages and gives government insurance the bond will be paid. Regardless of the mortgage status, Ginnie Mae…