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Transcript
Slide 1
-Casey Horn -Mak Karigan -Brian Lee -Mark Letteney
Slide 2
Casey Horn
Slide 3
Created in 1938, Fannie Mae is a nickname for the official name
of the Federal National Mortgage Association. The purpose of Fannie
Mae is to make loans and loan guarantees. Fannie Mae works to offer
as many loans to low or middle income families. Fannie Mae works in
the secondary market. Fannie Mae buys mortgages from banks, which
frees up the banks capital, allowing the bank to offer more people
loans and mortgages. Fannie Mae is a Government Sponsored
Enterprise but is publically traded. This is because to Fannie Mae
outgrew the need for federal funding, so it switched to a private
enterprise.
Slide 4
Created in 1970, Freddie Mac is the nickname for the Federal
Home Mortgage Loan Corporation. Freddie Mac has the same functions
as Fannie Mae. The reason Freddie Mac was created was to end Fannie
Maes monopoly on the secondary mortgage market. Freddie Mac is also
a Government Sponsored Enterprise that is publically traded.
Slide 5
Ginnie Mae Works with federally funded loans. Government owned
and not publicly traded. Sallie Mae Works with student loans and is
publicly traded. Farmer Mac Works with agricultural loans and is
publicly traded.
Slide 6
-Mak Karigan
Slide 7
Fannie Mae and Freddie Mac are a part of the subprime mortgage
crisis. The two Government Sponsored Enterprises (or GSEs), as
stated earlier bought mortgages from private banks. These private
banks knew that they would have no problem immediately selling
mortgage loans they had made to homebuyers. This security is what
enables the banks to offer loans to low and middle class
families.
Slide 8
To make money, the GSEs would sell some of their mortgages as
bonds in the form of Mortgage Backed Securities and charge a fee on
the MBS it sold. Investors are okay with this fee, because the GSE
is taking the risk. An MBS is just a group of individual mortgages
that the GSEs sell to investors. If any original borrower, whose
mortgage is in one of Fannie Mae or Freddie Macs MBSs doesnt pay
their mortgage, Fannie Mae or Freddie Mac would step in and pay the
difference to the investor. The same goes for if a borrower has
their house foreclosed upon- Fannie Mae or Freddie Mac will pay the
difference of the home sale and the mortgage to the investor.
Separate from MBSs, Fannie Mae and Freddy Mac also keep some of the
mortgages they buy from the banks, as another source of
revenue.
Slide 9
Fannie Mae and Freddie Mac can only buy what are known as
conforming loans which have a limit of $417,000 for a 1 family
home, as of 2008. The more loans banks are able to sell to Fannie
Mae and Freddie Mac, the more money banks are able to make.
Slide 10
As is the case for many financial meltdowns, greed and
stupidity are to blame. Banks began making junk loans, where the
bank didnt thoroughly check the borrowers financial status. This
allowed the bank to make more profit by selling an increased number
of mortgages to the GSEs. Not all the blame can be placed on the
banks. Also at fault are individuals who believed they could afford
loans well out of their asset range.
Slide 11
The GSEs have been hurt in two ways 1. As the mortgage payments
caught up to borrowers, more and more people have had their homes
defaulted on. This caused the GSEs to have to cover the difference
for the investors who invested in an MBS. 2. GSEs have had to cover
the cost of defaults on mortgages they kept for themselves. So many
mortgages were dragging down Fannie Mae and Freddie Mac that the
two lost a ton of money and needed financial help from
somewhere.
Slide 12
Slide 13
-Brian Lee
Slide 14
Together Fannie Mae and Freddie Mac own or guarantee just under
half the total value of home loans in the US. $5,500 billion worth
of residential mortgages, just under half the value of Americas
$12,000 billion worth of outstanding home loans.
Slide 15
Freddie Mac and Fannie Mae neared bankruptcy because of
subprime mortgage, Subprime mortgage- the practice of lending money
to people with low credibility at a high interest rate Basically,
investment banks were taking a huge risk because eventually people
could not pay their mortgages anymore
Slide 16
Since Freddie Mac and Fannie Mae owned just under half of the
U.S. mortgage market, if they were to go bankrupt the economy would
have not been pretty. So the government (Federal Housing Finance
Agency (FHFA)) takes over by putting them into conservatorship,
which pretty much means that the government has authority over the
two mortgage corporations. The CEO and board of directors from each
company were fired and replaced with a whole new group. Herbert
Allison, who is the former chair of TIAA-CREF, is the new CEO for
Fannie Mae. David Moffet, who is the former vice chairmen and CFO
of US Bancorp., is the new CEO for Freddie Mac. The take over,
however, will eventually get paid with our taxes. "The rescue will
provide up to $200 billion in new capital"
Slide 17
Slide 18
Slide 19
Today: 5.87% Day of Bailout: 6.35%
Slide 20
Homeowners can take advantage of the new lower rates As people
refinance, market stability will return and investor confidence
will snowball Supply and demand will return to a scared market
Slide 21
Slide 22
Buyers with low credit scores will incur high charges on new
mortgages, up to 2.25%
Slide 23
Mortgages valued at over $417,000 will be essentially
unaffected by not experience a rate decrease. Large mortgage
capital could be helpful to return liquidity to the market, but
there is no incentive.
Slide 24
Slide 25
Thousands of mutual funds invest in the financial market Built
in portfolio diversity fails