What fannie mae and freddie mac do

With their funding advantage, they purchased and invested in huge numbers of mortgages and mortgage-backed securities, and they did so with lower capital requirements than other regulated financial institutions and banks. Figures 1 and 2, below, produced by the companies' former regulator, the Office of Housing Enterprise Oversight , show the incredible amount of debt issued by the companies, their massive credit guarantees, and the huge size of their retained portfolios mortgage investment portfolios.

Treasury debt is used as a benchmark. Fannie Mae and Freddie Mac had many critics who tried to raise a red flag of concern about the risks the companies were allowed to take thanks to their implicit government backing. However, despite these early warning cries, Fannie Mae and Freddie Mac found many allies in Congress. While Fannie Mae and Freddie Mac's rivals, along with some public authorities, called for tighter regulation of the mortgage giants, the companies hired legions of lobbyists and consultants, made campaign contributions through their own political action committees, and funded nonprofit organizations to influence members of the U.

Congress to ensure that they were allowed to continue to grow and take on risk under their congressional charters and implied federal backing. It should come as no surprise that Fannie and Freddie's rivals on Wall Street wanted in on the profit bonanza of securitizing and investing in the portion of the mortgage market that the federal government had reserved for Fannie Mae and Freddie Mac. They found a way to do this through financial innovation , which was spurred on by historically low short-term interest rates.

They frequently had "exotic" characteristics such as interest-only or even negative-amortization features. Subprime lending took off. Investors such as pension funds , foreign governments, hedge funds and insurance companies readily purchased the sophisticated securities Wall Street created out of all the mortgages it was now purchasing. As Fannie Mae and Freddie Mac saw their market shares drop, they too began purchasing and guaranteeing an increasing number of loans and securities with low credit quality.

Donald Trump prepares to privatise Fannie Mae and Freddie Mac

It's a simple fact that when home prices are rising, there is less risk of mortgage default. The equity in a home is the single biggest risk measure of default. Homeowners with large amounts of equity do not walk away from their mortgages, and can usually refinance out of a mortgage with soon-to-be-expected payment increases into another mortgage with low initial payments.

This is the model upon which homeowners, mortgage originators , Wall Street, credit rating agencies and investors built the mortgage bonanza. When the housing bubble burst, so did all of their sophisticated risk models. In , Fannie Mae and Freddie Mac began to experience large losses on their retained portfolios, especially on their Alt-A and subprime investments.

In , the sheer size of their retained portfolios and mortgage guarantees led the FHFA to conclude that they would soon be insolvent. By September 6, , it was clear that the market believed the firms were in financial trouble, and the FHFA put the companies into " conservatorship ". Members of the U. As part of their public responsibility, the GSEs commit to purchase specified numbers of such loans.

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How many would not be made without the GSEs, however, is not clear. As a taxpayer, on the other hand, you have a cause for concern. If the GSEs ever have a financial disaster, the Government will have to bail them out and you and I will be on the hook for the cost. Very few informed observers believe that HUD is up to the task. It could be done by 1 revoking the credit line the GSEs now have with the Treasury, and b providing an explicit Federal guarantee of all debt and GSE guarantees outstanding on the date the credit line is revoked.

An explicit guarantee on the old claims would prevent any repercussions in the financial markets, yet put the markets on notice that news ones are not guaranteed. Over time, the volume of guaranteed claims would gradually decline. Shop For a Mortgage. Explore Kosher Reverse Mortgage Options.

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Thus far, criminal cases related to the packaging and sale of mortgage-backed securities have been conspicuously absent. The proposed JPMorgan settlement covers only civil charges, and would not settle the question of whether any individual executives engaged in wrongdoing. There is an ongoing federal criminal probe based in Sacramento, Calif.

JPMorgan originally sought to be protected from any criminal charges as part of this deal, but that request was rejected by the government. Another lawsuit filed earlier in Orange County Superior Court , this one for wrongful termination , has been filed against Fannie Mae by an employee who claims she was fired when she tried to alert management to kickbacks. The employee claims that she started voicing her suspicions in The bill, if it were passed, would modify the budgetary treatment of federal credit programs, such as Fannie Mae and Freddie Mac. The goal of the bill is to improve the accuracy of how some programs are accounted for in the federal budget.

District Court judge said Nomura Holdings Inc. The order brought to conclusion a rare trial addressing alleged mortgage-related infractions committed during the housing boom. Over the past few years, more than a dozen firms chose to settle similar allegations brought by the FHFA rather than face a court battle. During the boom, Fannie and Freddie invested billions of dollars in mortgage-backed securities issued by such companies as Nomura. During the nonjury trial, lawyers for the FHFA said that Nomura and RBS inflated values of homes behind some mortgages and sometimes said a home was owner-occupied when it was not.

From Wikipedia, the free encyclopedia. For the song, see Fannie Mae song. For the Chicago-based confectionery, see Fannie May. For the airport with this code, see Malanje Airport. Washington, D. Net income. Main article: Federal takeover of Fannie Mae and Freddie Mac. This section does not cite any sources. Please help improve this section by adding citations to reliable sources.

What's the Difference Between Fannie Mae and Freddie Mac?

Unsourced material may be challenged and removed. April Learn how and when to remove this template message. Further information: Securities and Exchange Commission. Retrieved February 17, Fendral National Mortgage Association. October 7, Archived from the original on October 26, Retrieved October 28, Who Made the List". Retrieved Fannie mae - official website. Retrieved January 31, Retrieved March 11, Shaky Ground: The Strange Saga of the U.

Fannie Mae, Freddie Mac and the 2008 Credit Crisis

Mortgage Giants. Columbia Global Reports. National Archives and Records Administration. October 28, September 30, The New York Times. Retrieved October 16, June 10, Washington Post. House Committee on Financial Services". Fannie Mae.

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Archived from the original on September 9, Retrieved October 15, July 28, Retrieved April 17, Congressional Record — th Congress. Library of Congress. May 25, Federal Housing Finance Reform Act of ". October 31, Levitin, Susan M. USA Today. July 12, Federal Housing Finance Agency.

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What Do Fannie Mae and Freddie Mac Do? - Mortgage Professor

United States Department of the Treasury. July 31, A bill to provide needed housing reform and for other purposes. Access to Legislative History: White House pre-signing statement: Statement of Administration Policy: Retrieved February 19, Retrieved July 11, Check date values in: Archived from the original on May 8, Retrieved June 15,