Fannie Mae and Freddie Mac by fjzhangweiyun


									  -Casey Horn
 -Mak Karigan
    -Brian Lee
-Mark Letteney
Casey Horn
 Created in 1938, Fannie Mae is a nickname for the
  official name of the Federal National Mortgage
 The purpose of Fannie Mae is to make loans and
  loan guarantees. Fannie Mae works to offer as
  many loans to low or middle income families.
 Fannie Mae works in the secondary market.
 Fannie Mae buys mortgages from banks, which
  frees up the banks capital, allowing the bank to
  offer more people loans and mortgages.
 Fannie Mae is a Government Sponsored Enterprise
  but is publically traded. This is because to Fannie
  Mae outgrew the need for federal funding, so it
  switched to a private enterprise.
 Created  in 1970, Freddie Mac is the
  nickname for the Federal Home Mortgage
  Loan Corporation.
 Freddie Mac has the same functions as
  Fannie Mae. The reason Freddie Mac was
  created was to end Fannie Mae’s monopoly
  on the secondary mortgage market.
 Freddie Mac is also a Government
  Sponsored Enterprise that is publically
 Ginnie  Mae – Works with federally
  funded loans. Government owned and
  not publicly traded.
 Sallie Mae – Works with student loans and
  is publicly traded.
 Farmer Mac – Works with agricultural
  loans and is publicly traded.
-Mak Karigan
 FannieMae and Freddie Mac are a part of
 the subprime mortgage crisis. The two
 Government Sponsored Enterprises (or
 GSE’s), as stated earlier bought mortgages
 from private banks. These private banks
 knew that they would have no problem
 immediately selling mortgage loans they
 had made to homebuyers. This security is
 what enables the banks to offer loans to low
 and middle class families.
   To make money, the GSE’s would sell some of their
    mortgages as bonds in the form of “Mortgage Backed
    Securities” and charge a fee on the MBS it sold. Investors
    are okay with this fee, because the GSE is taking the risk.
   An MBS is just a group of individual mortgages that the
    GSE’s sell to investors. If any original borrower, whose
    mortgage is in one of Fannie Mae or Freddie Mac’s MBS’s
    doesn’t pay their mortgage, Fannie Mae or Freddie Mac
    would step in and pay the difference to the investor.
   The same goes for if a borrower has their house foreclosed
    upon- Fannie Mae or Freddie Mac will pay the difference of
    the home sale and the mortgage to the investor.
   Separate from MBS’s, Fannie Mae and Freddy Mac also keep
    some of the mortgages they buy from the banks, as another
    source of revenue.
 Fannie Mae and Freddie Mac can only
  buy what are known as “conforming
  loans” which have a limit of $417,000 for
  a 1 family home, as of 2008.
 The more loans banks are able to sell to
  Fannie Mae and Freddie Mac, the more
  money banks are able to make.
 As is the case for many financial meltdowns,
  greed and stupidity are to blame.
 Banks began making “junk” loans, where
  the bank didn’t thoroughly check the
  borrowers financial status. This allowed the
  bank to make more profit by selling an
  increased number of mortgages to the
 Not all the blame can be placed on the
  banks. Also at fault are individuals who
  believed they could afford loans well out of
  their asset range.
 The GSE’s have been hurt in two ways
1. As the mortgage payments caught up to
   borrowers, more and more people have had
   their homes defaulted on. This caused the
   GSE’s to have to cover the difference for the
   investors who invested in an MBS.
2. GSE’s have had to cover the cost of defaults on
   mortgages they kept for themselves.
 So many mortgages were dragging down
   Fannie Mae and Freddie Mac that the two lost a
   ton of money and needed financial help from
-Brian Lee
   Together Fannie Mae and Freddie Mac own or guarantee
    just under half the total value of home loans in the US.
   $5,500 billion worth of residential mortgages, just under
    half the value of America’s $12,000 billion worth of
    outstanding home loans.
   Freddie Mac and Fannie Mae neared bankruptcy because of
    subprime mortgage,
   Subprime mortgage- the practice of lending money to
    people with low credibility at a high interest rate
   Basically, investment banks were taking a huge risk
    because eventually people could not pay their mortgages
   Since Freddie Mac and Fannie Mae owned just under half
    of the U.S. mortgage market, if they were to go bankrupt
    the economy would have not been pretty.
   So the government (Federal Housing Finance Agency
    (FHFA)) takes over by putting them into
    “conservatorship,” which pretty much means that the
    government has authority over the two mortgage
    corporations. The CEO and board of directors from each
    company were fired and replaced with a whole new group.
    Herbert Allison, who is the former chair of TIAA-CREF, is
    the new CEO for Fannie Mae. David Moffet, who is the
    former vice chairmen and CFO of US Bancorp., is the new
    CEO for Freddie Mac.
   The take over, however, will eventually get paid with our
   "The rescue will provide up to $200 billion in new capital"
 Today: 5.87%
 Day   of Bailout: 6.35%
 Homeowners    can take advantage of the
  new lower rates
 As people refinance, market stability will
  return and investor confidence will
 Supply and demand will return to a
  scared market
 Buyerswith low credit scores will incur
 high charges on new mortgages, up to
 Mortgages    valued at over $417,000 will
  be essentially unaffected by not
  experience a rate decrease.
 Large mortgage capital could be helpful
  to return liquidity to the market, but there
  is no incentive.
 Thousands   of mutual funds invest in the
  financial market
 “Built in portfolio diversity” fails

To top