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1. #FREDDDIE MAC GUIDLINES FOR VERIFYING EXISTENCE OF BUSINESS HOW TO#
2. #FREDDDIE MAC GUIDLINES FOR VERIFYING EXISTENCE OF BUSINESS PDF#
3. #FREDDDIE MAC GUIDLINES FOR VERIFYING EXISTENCE OF BUSINESS SERIAL#

Starting in 20-just as the housing bubble was reaching its peak-Fannie and Freddie increased their leverage and began investing in certain subprime securities that credit agencies incorrectly deemed low-risk. In an ill-fated effort to win back market share, Fannie and Freddie made a few tragic mistakes. In fact, Fannie and Freddie lost market share as the bubble grew: The companies backed roughly half of all home-loan originations in 2002 but just 30 percent in 20.

It was the poor performance of the loans in these “private-label” securities-those not owned or guaranteed by Fannie and Freddie-that led to the financial meltdown, according to the bipartisan Financial Crisis Inquiry Commission, among other independent researchers. Wall Street firms such as Lehman Brothers and Bear Stearns packaged these high-risk loans into securities, got the credit-rating agencies to bless them, and then passed them along to investors, who were often unaware or misinformed of the underlying risks.

#FREDDDIE MAC GUIDLINES FOR VERIFYING EXISTENCE OF BUSINESS SERIAL#

Many of those loans were predatory products such as hybrid adjustable-rate mortgages with balloon payments that required serial refinancing, or negative amortization, mortgages that increased the unpaid balance over time. During the bubble, loan originators backed by Wall Street capital began operating beyond the Fannie and Freddie system that had been working for decades by peddling large quantities of high-risk subprime mortgages with terms and features that drastically increased the chance of default. What role did Fannie and Freddie play in inflating the housing bubble of the mid- to late-2000s?Ĭontrary to conservative talking points, the answer is very little.

#FREDDDIE MAC GUIDLINES FOR VERIFYING EXISTENCE OF BUSINESS HOW TO#

By the end of that decade, however, Wall Street had figured out how to purchase and securitize mortgages without needing Fannie and Freddie as intermediaries, leading to a fundamental shift in the U.S. Under this system, mortgage credit was continuously available well into the late-1990s under terms and at prices that put sustainable homeownership within reach for most American families. Since Fannie and Freddie guarantee payments in the event of a default-for a fee, of course-investors don’t have to worry about credit risk, which makes mortgages a particularly attractive investment. Lenders also have an added incentive to offer safe and sustainable products-namely long-term, fixed-rate mortgages-because they know Fannie and Freddie will likely purchase them. Since mortgage lenders don’t have to hold these loans on their balance sheets, they have more capital available to make loans to other creditworthy borrowers. Fannie and Freddie also hold some home loans and mortgage securities in their own investment portfolios. Fannie and Freddie purchase home loans made by private firms (provided the loans meet strict size, credit, and underwriting standards), package those loans into mortgage-backed securities, and guarantee the timely payment of principal and interest on those securities to outside investors. The primary function of Fannie Mae and Freddie Mac is to provide liquidity to the nation’s mortgage finance system. On the fourth anniversary of their conservatorship, here are seven things you need to know about the two mortgage giants. Still, few Americans understand what Fannie and Freddie actually do for homeowners, what part they played in the recent housing crisis, or what role they’ll have in the mortgage market of the future. Since then, the two companies have required roughly $150 billion in taxpayer support to stay solvent, while the government has kept the housing market afloat by backing more than 95 percent of all home loans made in the United States.įannie and Freddie remain two of the largest financial institutions in the world, responsible for a combined $5 trillion in mortgage assets.

#FREDDDIE MAC GUIDLINES FOR VERIFYING EXISTENCE OF BUSINESS PDF#

Endnotes and citations are available in the PDF and Scribd versions.Įxactly four years ago, during the early days of the financial crisis, the federal government took control of mortgage financiers Fannie Mae and Freddie Mac through a legal process called conservatorship.