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Creating the Secondary Mortgage Market: Players and History

Creating the Secondary Mortgage Market: Players and History

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Creating the Secondary Mortgage Market: Players and History

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  1. Creating the Secondary Mortgage Market:Players and History Erica Liu

  2. Secondary Mortgage Market • The market for the sale of securities or bonds collateralized by the value of mortgage loans • Ensure liquidity in the market • Redistribute funds across the nation

  3. National Housing Act of 1934 • Franklin Roosevelt’s New Deal • Relief, Recovery, and Reform after Great Depression • Make housing and home mortgages more affordable • Protect lenders from the risk of default

  4. Federal Housing Administration • Assist in the construction, acquisition, and/or rehabilitation of residential properties • Regulate rate of interest and terms of mortgages • Insure mortgages • Increase the number of people who can afford down payment and monthly mortgage payments • Increase the size of market for single family homes

  5. Federal National Mortgage Association • 1938 – Founded as a government agency • Establish a secondary mortgage market • Bought FHA insured loans from private lenders • Lenders more inclined to extend mortgage credit • Equalize supply and demand of funds in capital rich and capital poor areas

  6. World War II • 1944 - Servicemen's Readjustment Act (GI "Bill of Rights”) • 1949 – Fannie Mae authorized to purchase mortgages insured by the Veteran’s Administration

  7. VA Home Loan Program • End of WW II, troops returned home from overseas • Increased demand for housing and financing • Designed to help members of the U.S. armed forces readjust to civilian life after war • Federally guaranteed home loans to help veterans buy houses and reestablish good credit

  8. Housing and Urban Development Act of 1968 • Fannie Mae becomes a government sponsored enterprise (GSE) • sold to private shareholders • Fannie Mae split into two organizations

  9. Government National Mortgage Association • Government-owned corporation within the Department of Housing and Urban Development • Securitize loans insured by the FHA and VA • Government maintains control over secondary market for federally insured mortgages

  10. Mortgage Backed Securities • Agency pass through securities • Issued by approved lenders • Agency guarantees timely payment • Ginnie Mae - only MBS to carry the “full faith and credit guaranty” of the United States government

  11. Federal Home Loan Mortgage Corporation • 1970 - Emergency Home Finance Act • Publicly owned GSE • Expand secondary mortgage market and eliminate perceived monopoly of Fannie Mae

  12. Role of GSE’s • 1972 – Fannie Mae and Freddie Mac began purchasing “conventional” mortgages • Mortgages not guaranteed by FHA or VA • Loans required insurance from new Private Mortgage Insurance companies • Can buy or sell any type of residential mortgage • Mortgages packaged into securities are restricted to government loans and those that satisfy underwriting guidelines (conforming conventional loans)

  13. What’s The Difference? • GSE’s purchase mortgages • Freddie Mac - purchase loans from savings and loan associations • Fannie Mae -focused on banks and other mortgage finance companies • Ginnie Mae only issues guarantee

  14. Sources • http://www.ginniemae.gov/about/history.asp?Section=About • http://www.fundinguniverse.com/company-histories/Fannie-Mae-Company-History.html • http://www.cbo.gov/ftpdocs/120xx/doc12032/12-23-FannieFreddie.pdf • http://www.encyclopedia.com/topic/Federal_National_Mortgage_Association.aspx • http://www.referenceforbusiness.com/history2/27/Freddie-Mac.html • http://www.themonticellogroup.com/American_Mortgage_Market.pdf • http://www.va-home-loans.com/history_VA_loan.htm

  15. Questions?