Fannie Mae Case

659 Words 3 Pages
When the borrower gets his mortgage from a bank or other lending institution in order to finance his or her house purchase, this transaction is considered to belong to the Primary Market. At this point, the lender has a choice of either servicing the loan for the time equivalent to that loan duration (5, 10, 15, 20, 30 years or any other such term) or sell it to someone else.

Some lenders decide that they want a steady and secured income coming from systematic, monthly payments from the borrower. They collect their income in the form of interest earned on the loan. The higher the loan and the longer the term of the loan, the higher the interest going to the lenders' pockets is.

If the lender decides to sell the loan soon after underwriting
…show more content…
It is a government sponsored corporation that buys mortgages on the secondary market, pools them, and then sells them as mortgage-backed securities on the open market. As explained earlier, it helps to replenish the supply of lendable money in the primary …show more content…
It came into existence in 1968. Ginnie Mae's provides financial assistance to low and moderate-income homebuyers by means of promoting mortgage credit. It also guarantees payment of principal and interest on mortgage-backed securities.

Freddie Mac is a government chartered corporation (1970) established to purchase mortgages and mortgage- related securities. It issues bonds and securities in secondary markets.

Secondary market is a very important player in the mortgage business. It provides liquidity in the market. Let us assume that a bank wants to sell one or more mortgages but no one else wants to purchase them. That is where any of the three above-mentioned public investors step in. They will buy these loans and thus enable the bank to make more home loans.

In order for these loans to be purchased by one of the public investors, the loan has to adhere to sets of pre-determined criteria established by Fannie Mae, Freddie Mac or Ginnie Mae. In a case borrower defaults on the mortgages after it has been sold at the secondary market, and it is later found out that these guidelines were not met, the bank that originally approved the loan might be forced to buy the loan

Related Documents