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Unformatted text preview: d in 1930's
Purchased FHA Loans on Secondary Market Made Quasi Private Corporation in 1968 due to Vietnam War Started Purchasing Conforming Loans in 1970 (3 C's) Freddie Mac (FHLMC) Established in 1970
Goal to Create Market Competitor w/ Fannie Mae for Conforming Loans Major Accomplishments
Standardization in Forms and Practices: Increased liquidity and stability of mortgage markets Role in "Subprime" Housing Crisis
Only Purchased Low Risk Conforming Loans on Sec Market Was Over Leveraged, Not Enough Reserves 20 Subprime Housing Crisis
Federal Reserve Lowers Interest Rates to 1%
Expensive to Save, Cheap to Borrow Explosion of Private Mortg Backed Securities
FNMA and FHLMC Dominate Conforming Market Wall Street Creates Demand for Subprime Loans House Prices Begin to Fall in 2005
Previous Borrowers Could Not Refinance Risky Loans 4 5% of Conforming Default, 20% of Subprime Default Widespread Uncertainty Creates 2008 Panic Texas Tech University 7 Real Estate Fundamentals Dr. Eriksen Lesson 9: Origination and Sec. Markets Government Responses to Crisis
Fed Lowered Interest Rates, Increased Lending
Overnight Borrowing from $57m $847b Lower Rates Increase Cost of Saving...
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- Fall '08