The Bankwatch

Tracking the consumer evolution of financial services

The US mortgage market and how it works

Thanks to the Financial Times for this guide to the US Mortgage market. Click through to use it interactively [registration required] / In depth – Freddie Mac and Fannie Mae

Fannie Mae and Freddie Mac
Although these government-chartered mortgage financiers, they have roots in government policy.

Fannie Mae was created in the Great Depression as a government agency to create a secondary market for mortgages. The aim was to boost banks’ capacity to offer home loans, by buying up their existing home loans in exchange for cash.

In 1968 Fannie Mae was partially privatised and Freddie Mac was created, as a wholly private company, to provide competition in this secondary mortgage market.

Both Fannie Mae and Freddie Mac began turn these purchased mortgages into tradable securities, known as mortgage-backed securities. They also purchase some of the MBS they create.

Fannie, like Freddie, is now a listed corporation. Both companies have their own regulator, the Office of Federal Housing Oversight, and are subject to specific regulations. Like the FHLBs, they are perceived by the wider market as having implicit government backing. In March 2008 Ofheo gave both companies permission to add as much as $200bn into the beleagured mortgage markets, by reducing their capital requirements.

Written by Colin Henderson

July 15, 2008 at 11:46

Posted in US

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