Multi-National Corporations

[ryoder]

From wikipedia.
The Federal National Mortgage Association (FNMA; OTCBB: FNMA), commonly known as Fannie Mae, was founded in 1938 during the Great Depression as part of the New Deal. It is a government-sponsored enterprise (GSE), though it has been a publicly traded company since 1968.[2] The corporation's purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MBS),[3] allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on thrifts.[4

Fannie Mae - Wikipedia, the free encyclopedia

So you see that the Gub-mint created the secondary mortgage market. They also set the underwriting standards for loans. So loan originators just have to make sure all the boxes are checked for Fannie and Freddie and they can originate a loan. They are then sold to Fannie or Freddie and enter the secondary market. Correct me if I am wrong on some of the details mortgage brokers, but that is how it works in a nutshell.

Back in the 1990s, the feds looked at the statistics and found that people who were doing well in the middle class tended to own homes. So, they decided that if they could get more people to own homes, more people would be doing well. To do that, they lowered the standards to qualify for a mortgage and lowered the money down to around 2% for an FHA insured loan. Back in the day, you had to have 20% down, but in the new world, 2% was sufficient.

So a lot of people flooded the market, drove up housing prices and created the housing bubble. The bubble burst and any houses bought in the 2006-2007 time frame became instantly worth much less. People who were able to pay their payments decided to do strategic defaults and just walk away. Some people who lost their jobs and wanted to sell the house to get out couldn't, so the banks allowed them to short sale and forgave a portion of the debt. Others like me just sucked it up and kept paying on a house that lost over 1/3 of the loan value.

I am not a trust fund kid.