Fannie and Freddie Planning to Aide Lenders

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Mortgage insurers Fannie Mae and Freddie Mac are planning aide to mortgage lenders.  The plan is to create a program to help independent mortgage banks get access to short term credit needed to make home loans.

Fannie Mae and Freddie Mac will provide advance commitments for the purchase of home mortgages that meet specific standards.

The intent of the program is to reduce risks that independent mortgage banks face so they can obtain short term credit.

With the financial history of Fannie Mae, a move toward this kind of program could be risky.  The companies are planning to build on an already existing undisclosed pilot program, which Freddie Mac is currently involved in with Provident Funding Association LP and ware-house lender Natty Mac.

The Federal National Mortgage Association (Fannie Mae) was founded in 1938 during the Great Depression.  It was formed with the primary purpose of purchasing and scrutinizing mortgages in order to ensure funds were consistently available to the institutions that lend money to home buyers.

In 1968, Fannie Mae was converted into a private shareholder owned corporation.  This action was done in order to remove the financial activity of Fannie Mae from the Federal budget.  Because of this step Fannie Mae ceased to be the guarantor of Government issued mortgages.

The responsibility of government mortgage guarantor was given to the new Government National Mortgage Association (Ginnie Mae).   In 1970 the Federal Government created the Federal Home Loan Mortgage Corporation (Freddie Mac) which could then compete with Fannie Mae to build a stronger and more efficient secondary mortgage market.

The Carter Administration created and passed the Community and Reinvestment Act of 1977 designed to boost lending to lower income areas.  This program with the help of HUD helped low income families finally reach the goal of home ownership.  Then in 1999, the Clinton administration pressured Fannie Mae to expand mortgage loans to low and moderate income borrowers which increased their loan portfolios in distressed inner city areas that were designated earlier by the CRA of 1977.

Due to the increased ratio requirements,  primary mortgage lenders pressured Fannie Mae to lower credit requirements on the mortgages that it would be willing to purchase.  With lower credit requirements lenders were able to grant loans to sub-prime borrowers at much higher interest rates than conventional loans.  Shareholders were also putting pressure on Fannie Mae to maintain its record profits.

In 2000 anti-predatory rules were enacted to disallow risky high cost loans from being credited toward affordable housing goals.  Then in early 2004 the anti-predatory rules were dropped.

On September 7, 2008, Fannie Mae and Freddie Mac were placed in a conservator-ship of the FHFA.  At that time Fannie Mae and Freddie Mac owned or guaranteed almost half of the United States $12 Trillion mortgage market.

Now in the later half of 2009 we are getting the report that Fannie Mae and Freddie Mac will once again try to help mortgage lenders get access to short term credit.  Looking back over the history of these two organizations it is clear that this is not in the best interest of the future of the housing market.

Related posts:

  1. Freddie Mac Needs Another Bailout
  2. Freddie Mac Raises Mortgage Fees
  3. More Changes Ahead for Freddie Mac and Fannie Mae
  4. The Impending Reform of Fannie Mae and Freddie Mac
  5. Lenders Want More Credit Information

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