Creating the Secondary Mortgage Market:

Players and HistoryErica Liu

Secondary Mortgage MarketThe market for the sale of securities or bonds

collateralized by the value of mortgage loansEnsure liquidity in the marketRedistribute funds across the nation

National Housing Act of 1934Franklin 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

Federal Housing AdministrationAssist in the construction, acquisition, and/or

rehabilitation of residential propertiesRegulate rate of interest and terms of

mortgagesInsure mortgages

Increase the number of people who can afford down payment and monthly mortgage payments

Increase the size of market for single family homes

Federal National Mortgage Association1938 – Founded as a government agencyEstablish a secondary mortgage market Bought FHA insured loans from private

lendersLenders more inclined to extend mortgage

creditEqualize supply and demand of funds in

capital rich and capital poor areas

World War II1944 - Servicemen's

Readjustment Act (GI "Bill of Rights”)

1949 – Fannie Mae authorized to purchase mortgages insured by the Veteran’s Administration

VA Home Loan ProgramEnd of WW II, troops returned home from

overseasIncreased 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

Housing and Urban Development Act of 1968Fannie Mae becomes a government

sponsored enterprise (GSE) sold to private shareholders

Fannie Mae split into two organizations

Government National Mortgage AssociationGovernment-owned corporation within the

Department of Housing and Urban Development

Securitize loans insured by the FHA and VAGovernment maintains control over

secondary market for federally insured mortgages

Mortgage Backed SecuritiesAgency pass through

securitiesIssued by approved

lenders Agency guarantees timely

payment Ginnie Mae - only MBS to

carry the “full faith and credit guaranty” of the United States government

Federal Home Loan Mortgage Corporation

1970 - Emergency Home Finance Act

Publicly owned GSEExpand secondary

mortgage market and eliminate perceived monopoly of Fannie Mae

Role of GSE’s1972 – Fannie Mae and Freddie Mac began

purchasing “conventional” mortgages Mortgages not guaranteed by FHA or VALoans required insurance from new Private

Mortgage Insurance companiesCan 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)

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

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

Questions?