damania
09-27-2008, 09:20 PM
One thing people do not understand is how the mortgage market behind the scene works.
Fannie and Freddie only buy conforming loans (aka the conventional loan) from the banks in the secondary market. They only deal with loans under a certain amount (used to be around $400,000). Loans above this amount are called JUMBO loans and are not accepted by Fannie or Freddie (they are funded by the bank or private lender and have a higher interest rate). The conforming loans also had to have a certain amount of down payment on top of needing to meet a high credit rating threshhold and they needed to have documented income.
Anyways, the bank which initially made the loan to you sells the loan to Freddie or Fannie Mac and gets their money back so they can loan to another person.
Well... What happened is the crooks at the banks and the crooks on Wall Street wanted more profits. They wanted to go around Freddie and Fannie so that they could make more money. They came up with CDOs and nortgage securities which would be bought by foreign investors and all kinds of investors. These loans were where there was rampant fraud.
Freddie and Fannie were solid until the Fed and Congress changed the laws and forced Freddie and Fannie to take CDOs and mortgage securities and treat them just like they were conventional loans. The banks and the crooks got their full money back.
Then the banks went bankrupt and Freddie and Fannie were left holding the bag. They had to be nationalized.
So that's the story of Freddie and Fannie. The story of the takedown of solid American Institutions. Ok maybe they would've suffered with the downturn in mortgage values, but nothing like going bankrupt when holding CDOs and mortgage securities.....
Fannie and Freddie only buy conforming loans (aka the conventional loan) from the banks in the secondary market. They only deal with loans under a certain amount (used to be around $400,000). Loans above this amount are called JUMBO loans and are not accepted by Fannie or Freddie (they are funded by the bank or private lender and have a higher interest rate). The conforming loans also had to have a certain amount of down payment on top of needing to meet a high credit rating threshhold and they needed to have documented income.
Anyways, the bank which initially made the loan to you sells the loan to Freddie or Fannie Mac and gets their money back so they can loan to another person.
Well... What happened is the crooks at the banks and the crooks on Wall Street wanted more profits. They wanted to go around Freddie and Fannie so that they could make more money. They came up with CDOs and nortgage securities which would be bought by foreign investors and all kinds of investors. These loans were where there was rampant fraud.
Freddie and Fannie were solid until the Fed and Congress changed the laws and forced Freddie and Fannie to take CDOs and mortgage securities and treat them just like they were conventional loans. The banks and the crooks got their full money back.
Then the banks went bankrupt and Freddie and Fannie were left holding the bag. They had to be nationalized.
So that's the story of Freddie and Fannie. The story of the takedown of solid American Institutions. Ok maybe they would've suffered with the downturn in mortgage values, but nothing like going bankrupt when holding CDOs and mortgage securities.....