What Do Fannie/Freddie Do?

From capegazette.com:

Federal financiers hope the government takeover of Fannie Mae and Freddie Mac will save other banks from failure as they weather the fallout of the mortgage crisis. Large regional banks are the ones affected by the problems of Fannie Mae and Freddie Mac, she said.
Chris Carulli, mortgage broker with Dynamic Mortgage, said the takeover and the government guarantee of mortgages should spur more sales of mortgage-backed securities by lessening the risk associated with them. When Fannie Mae and Freddie Mac were beginning to struggle, restrictions on getting loans were tightening. What do Fannie Mae and Freddie Mac do?
Fannie Mae and Freddie Mac grease the wheels of the finance world.
Together, Fannie and Freddie own or guarantee $5 trillion in home loans – nearly half the nation’s loans.
History of Fannie Mae and Freddie Mac
By giving local banks federal money to finance mortgages, Fannie Mae made it easier for people to get loans, and increased the availability of affordable housing.
Fannie Mae was authorized to buy mortgages insured by the Federal Housing Administration, which replenished the money banks had to lend. In 1954, private stockholders began buying into Fannie Mae. President Richard M. Nixon signed a bill in 1970 allowing Fannie Mae to purchase conventional mortgages. Freddie Mac was also intended to limit further monopolization on the secondary mortgage market by Fannie Mae.
That same year, stockholder-owned Federal Home Loan Mortgage Corporation, called Freddie Mac, was chartered by congress to support homeowners and renters. Freddie Mac purchases residential mortgages.
What went wrong for mortgage lending powerhouses?
Linda Messick, president of Community Bank, Delaware, said, “Fannie and Freddie got too big for their own capital.”
Not banks, Fannie Mae and Freddie Mac bought up original mortgages, then sold them to Wall Street as what are known as mortgage-backed securities, Messick said. Those mortgages were bought by mutual funds, investment houses and banks.

About Luke Ford

Raised a Seventh-Day Adventist at Avondale College in Australia, Luke Ford moved to California in 1977. He graduated from Placer High School in 1984, reported the news at KAHI/KHYL radio for three years, attended Sierra College and UCLA, was largely bedridden by Chronic Fatigue Syndrome for six years, and converted to Judaism in 1993. From 1997-2007, Luke made his living from blogging. Living by Beverly Hills (Alexander90210.com), he now teaches the Alexander Technique (moving the way the body likes to move). Lessons cost $100 each and last about 45 minutes. In 2011, Luke completed a three-year teaching course at the Alexander Training Institute of Los Angeles. His personal Alexander Technique website is Alexander90210.com. Luke is the author of five books, including: » The Producers: Profiles in Frustration » Yesterday’s News Tomorrow: Inside American Jewish Journalism
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