- HOME FINANCING GLOSSARY
- Understanding Fannie Mae and Freddie Mac
- Who is Freddie Mac?
- Who Are Freddie Mac and Fannie Mae? - Poli Mortgage
I wonder if they had any idea the U.
HOME FINANCING GLOSSARY
And they wonder why the dollar is weak. Why don't we hear about how sub prime mortgages that were forced on the local bankers by groups created to get greater political power? What about the graft and corruption in Freddie and Fannie? Obama was a Community Organizer and Lawyer and group organizer for Acorn, the group that used Gestapo tactics to force Banks and mortgage lenders to buckle under and give mortgages to groups that could not afford them.
Judging from the tone of the articles, it's clear what side of the political fence you sit on. A few indisputable facts: 1. Quote from Barney Frank D during hearing on GSE regulation in September "I want to begin by saying that I am glad to consider the legislation, but I do not think we are facing any kind of a crisis. That is, in my view, the two government sponsored enterprises we are talking about here, Fannie Mae and Freddie Mac, are not in a crisis.
Understanding Fannie Mae and Freddie Mac
Skip ahead to Alan Greenspan testified before the Senate Banking committee and said the following: "We at the Federal Reserve remain concerned about the growth and magnitude of the mortgage portfolios of the government-sponsored enterprises, which concentrate interest rate risk and prepayment risk at these two institutions and makes our financial system dependent on their ability to manage these risks," Mr. Greenspan said. Schumer, Democrat of New York, criticized Mr.
Greenspan's recommendation and called it both inconsistent with his other views on regulation and potentially damaging to the housing markets. Without identifying anyone in particular, he also suggested that some people who have advanced tougher regulation of the two housing finance companies are really pushing a broader agenda to eliminate the companies and their mission of providing affordable housing.
Schumer said. Fannie and Freddie have problems and there are ideologues who want to undo them. But there are ways to fix the problems short of what's been proposed. When the sink is broken, you don't want to tear down the house. OFHEO's report this week does nothing to ease these concerns.
Who is Freddie Mac?
In fact, the report does quite the contrary. If Congress does not act, American taxpayers will continue to be exposed to the enormous risk that Fannie Mae and Freddie Mac pose to the housing market, the overall financial system, and the economy as a whole. I urge my colleagues to support swift action on this GSE reform legislation.
Barack Obama is number 2 on the list. Now we are all faced with paying the bill. I stumbled upon this article which speculates that if there was ever a collapse of any of these corporations, the US taxpayers may be responsible for billions of dollars. Well, isn't that interesting? It took 5 years before anyone sat up and took notice.
The subcommitte developed to "investigate" the problems with fiscal practices at fannie mae and freddie mac apparently didn't catch on what was happening until now. In That makes no sense to me, maybe I am just crazy? And a good number of Americans want the government to be in charge of our health care, can't wait to see how that turns out.https://discnoneto.tk
Who Are Freddie Mac and Fannie Mae? - Poli Mortgage
My gut tells me this bailout is putting a band aid a a much deeper problem. Has anyone had the courage to ask the unasked question - What would happen if we held these long established GSE's accountable for their actions?
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What if we took the time to trace the chain of command through the government and corporate web and get to the bottom of the funny money and mortgage magic? Why not prosecute and remove these board members and government cohorts and let the free market economy find it's bottom and birth fresh and improved guidelines that let the GSE's and their directors pick up their own tab including appropriate prison time?
Is that too devastating a thought to think? How can something good come from a practise so flawed? In , Fannie Mae came under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers by increasing the ratios of their loan portfolios in distressed inner city areas designated in the Community Reinvestment Act CRA of But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the s.
In , because of a re-assessment of the housing market by HUD , anti-predatory lending rules were put into place that disallowed risky, high-cost loans from being credited toward affordable housing goals.
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- Understanding What Fannie Mae Does?
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In , these rules were dropped and high-risk loans were again counted toward affordable housing goals. The intent was that Fannie Mae's enforcement of the underwriting standards they maintained for standard conforming mortgages would also provide safe and stable means of lending to buyers who did not have prime credit. As Daniel Mudd , then president and CEO of Fannie Mae, testified in , instead the agency's underwriting requirements drove business into the arms of the private mortgage industry who marketed aggressive products without regard to future consequences:.
We also set conservative underwriting standards for loans we finance to ensure the homebuyers can afford their loans over the long term. We sought to bring the standards we apply to the prime space to the subprime market with our industry partners primarily to expand our services to underserved families.
Unfortunately, Fannie Mae-quality, safe loans in the subprime market did not become the standard, and the lending market moved away from us. Borrowers were offered a range of loans that layered teaser rates , interest-only, negative amortization and payment options and low-documentation requirements on top of floating-rate loans. In early we began sounding our concerns about this "layered-risk" lending.
For example, Tom Lund, the head of our single-family mortgage business, publicly stated, "One of the things we don't feel good about right now as we look into this marketplace is more homebuyers being put into programs that have more risk. Those products are for more sophisticated buyers. Does it make sense for borrowers to take on risk they may not be aware of? Are we setting them up for failure? As a result, we gave up significant market share to our competitors. But not to worry: their large staff of scientists deem these events 'unlikely'". Chuck Hagel.
After being reported favorably by the Senate's Committee on Banking, Housing, and Urban Affairs in July , the bill was never considered by the full Senate for a vote. John McCain's decision to become a cosponsor of S. Hagel's bill in spite of developments since clearing the Senate Committee. McCain pointed out that Fannie Mae's regulator reported that profits were "illusions deliberately and systematically created by the company's senior management" in his floor statement giving support to S. It was passed by the House in October in spite of President Bush's statement of policy opposed to the House version, which stated: "The regulatory regime envisioned by H.
Following their mission to meet federal Housing and Urban Development HUD housing goals, GSEs such as Fannie Mae, Freddie Mac and the Federal Home Loan Banks FHLBanks had striven to improve home ownership of low and middle income families, underserved areas, and generally through special affordable methods such as "the ability to obtain a year fixed-rate mortgage with a low down payment As loan originators began to distribute more and more of their loans through private label PLS's, the GSEs lost the ability to monitor and control loan originators.
Competition between the GSEs and private securitizers for loans further undermined GSEs' power and strengthened mortgage originators. This contributed to a decline in underwriting standards and was a major cause of the financial crisis. Investment bank securitizers were more willing to securitize risky loans because they generally retained minimal risk. Whereas the GSEs guaranteed the performance of their mortgage-backed securities MBSs , private securitizers generally did not, and might only retain a thin slice of risk.
Often, banks would offload this risk to insurance companies or other counterparties through credit default swaps , making their actual risk exposures extremely difficult for investors and creditors to discern. The shift toward riskier mortgages and private label MBS distribution occurred as financial institutions sought to maintain earnings levels that had been elevated during — by an unprecedented refinancing boom due to historically low interest rates. Earnings depended on volume, so maintaining elevated earnings levels necessitated expanding the borrower pool using lower underwriting standards and new products that the GSEs would not initially securitize.
Thus, the shift away from GSE securitization to private-label securitization PLS also corresponded with a shift in mortgage product type, from traditional, amortizing, fixed-rate mortgages FRMs to nontraditional, structurally riskier, nonamortizing, adjustable-rate mortgages ARM's , and in the start of a sharp deterioration in mortgage underwriting standards. Shareholder pressure pushed the GSEs into competition with PLS for market share, and the GSEs loosened their guarantee business underwriting standards in order to compete.
The growth of private-label securitization and lack of regulation in this part of the market resulted in the oversupply of underpriced housing finance  that led, in , to an increasing number of borrowers, often with poor credit, who were unable to pay their mortgages — particularly with adjustable rate mortgage loans ARM , caused a precipitous increase in home foreclosures. As a result, home prices declined as increasing foreclosures added to the already large inventory of homes and stricter lending standards made it more and more difficult for borrowers to get loans.
This depreciation in home prices led to growing losses for the GSEs, which back the majority of US mortgages. In July , the government attempted to ease market fears by reiterating their view that "Fannie Mae and Freddie Mac play a central role in the US housing finance system". The US Treasury Department and the Federal Reserve took steps to bolster confidence in the corporations, including granting both corporations access to Federal Reserve low-interest loans at similar rates as commercial banks and removing the prohibition on the Treasury Department to purchase the GSEs' stock.
Fannie stock plunged. Others worried about a government seizure. Treasury Secretary Henry M. Paulson as well as the White House went on the air to defend the financial soundness of Fannie Mae, in a last-ditch effort to prevent a total financial panic. Fannie and Freddie bonds were owned by everyone from the Chinese Government , to money market funds , to the retirement funds of hundreds of millions of people.
If they went bankrupt there would be mass upheaval on a global scale. Their government directive to purchase bad loans from private banks, in order to prevent these banks from failing, as well as the 20 top banks falsely classifying loans as AAA, caused instability.