Fannie Mae (FNMA) is an acronym for Federal National Mortgage Association.  It is a government sponsored enterprise (GSE) of the U.S. Government.  It was created in 1938 as part of President Roosevelt’s “New Deal” to provide money and liquidity to the mortgage market which collapsed earlier in the decade during the Great Depression.   It is a shareholder-owned corporation authorized to make loans and loan guarantees. 

Freddie Mac (FHLMC) is another GSE, founded in 1970, has the exact same functions and operates the exact same way as Fannie.

The main mission of Fannie and Freddie is to provide liquidity into the mortgage markets by purchasing loans made by local lenders and repackaging them into bond-market security pools that are sold to investors with the U.S. Government’s stamp of approval.  A simplified example is, I may get you a home loan with Wells Fargo at 6.5%——who then sells your loan with a bunch of others (called pools) to Fannie/Freddie for 6.0%, who sells them on Wall Street (called mortgage backed securities).  Wells Fargo collects your monthly payment (called servicing) for a fee; however, they’ve already sold your loan on Wall Street.  This loan is “guaranteed” by Fannie or Freddie, which is what makes our interest rates so low.  Without this flow of money (liquidity), our home rates would be, who knows, 2% to 4% higher, is a guess.

HISTORY

In 1968, to remove the activity of Fannie from the annual balance sheet of the federal budget, it was converted into a private corporation.  Fannie ceased to be the guarantor of government-issued mortgages, and that responsibility was transferred to Ginnie Mae (Government National Mortgage Association).  This entity falls under the guise of HUD and provides all of our FHA and VA loans—amongst others, such as Indian Housing and Rural loan programs.  In 1970, Freddie was founded to expand the secondary mortgage market and to combat Fannie’s monopoly.  When you hear the term “Conventional” loans, that means Fannie & Freddie, which are allowed to guarantee loans up to $417,000.  Anytime you hear “Jumbo” loans, those are loans greater than $417K, money comes from a smaller pool of non-Fannie/Freddie investors, thus Jumbo loans higher rates.

TODAY 

Fannie and Freddie own/guarantee over half of the $12 Trillion mortgage market.  There is a wide belief that these securities are backed by some sort of implied Federal Guarantee.  These days, Congress, The Fed, The SEC are all talking about how to keep Fannie and Freddie afloat if the foreclosure rate threatens their liquidity.  The big fear for our economy is if these GSEs will eventually be supported by U.S. Treasuries, then eventually, us tax payers.  Stay posted!!

LICENSING FOR LOAN OFFICERS BY 2010

Well, it’s a start!!  Finally, effective January 1, 2010, loan originators must pass a test, background check and work for a licensed Banker or Broker.  I hope this will lay the groundwork for more stringent testing and higher standards for what our starting point is. 

Good things about the bill are:  mandatory background check to see if the loan officer has any criminal records, fraudulent history or judgements pending.  It also puts the burden of fraud / mis-doings onto the L.O., not just it’s employer.  It should also eliminate many of the out of state lenders that do business here illegally.

The shortcomings of the bill are:  The bill EXEMPTS institutions at the FEDERAL level.  This is a joke.  It means the loan officers at Wells Fargo, Bank of America, Wachovia etc. do not have to be licensed.  All in all, these direct employees already meet higher screening standards that brokers don’t necessarily have to meet.  I have no issue with these peers.  In fact, most legitimate Federal Bank employees will take the tests and get certified just to have the accreditation.  My objection is that is still gives a green light to the “bulk”banks of the world, all who employ illiterate call-center loan officers, the ones that slam many consumers into products or loans that are unsuitable.  These “call center banks” are all owned by Federal Banks.  

In an ideal world, I’d love to see loan officers bonded, along with having a credit report history that proves the individual is not in financial difficulty.  Too often we see loan officers (along with similar realtors) making a transaction just for the sake of commission, only because they are in such dire need for the commission—at the expense of their client.

THESE DAYS’ WILD MARKET RIDE

The Dow Jones has dropped almost 900 points over the past few weeks.  Our 30 year fixed rates, creeping into the high 6%s just a few weeks ago after the FED basically announced the rate cuts are over, have come back down to the low 6%s.  This is due to investors moving their money from an unstable stock market into our bond and mortgage back security market, which is where we get our mortgage money.  Lots of factors, but one of those factors is the major bank earnings—er, uh, I mean losses.  Until the banks, known as ‘the financials’ in Wall Street talk, stop losing money—the stock market will suffer, house loans will be in short supply, and this will keep our housing market either suppressed, or in further decline.  Ouchie !!!!