10-16-09 - Economics 448 Class Notes 10/16/09 GUEST...

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Economics 448 – Class Notes – 10/16/09 GUEST SPEAKER: 12 million loans Everything is held together by contracts Primary and secondary mortgage markets: SECTIONS: Origination servicing securitization distribution FLOW: Borrower Banks, thrifts, mortgage bankers > Servicers GSEs, private conduits Brokers dealers Banks/thrifts, insurers, money managers, other investors Freddie Mac: had to buy back a lot of the fraudulent loans GSE Government Sponsored Enterprise Information flow starts to matter when Freddie Mac puts a guarantee on the 30-year mortgages it buys They put a guarantee on the debt if the borrower fails to make a payment, Freddie pays the payment Thus, investor just has to look to the credit rating of one agency -> Freddie mac This is called securitization macheto banking system creating a lending relationship between borrowers and lenders Securitization > all about contracts and information flow: There are a lot of lemons in the mortgage market now
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10-16-09 - Economics 448 Class Notes 10/16/09 GUEST...

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