Mbs programs 2015 rockwell publishing secondary

This preview shows page 34 - 44 out of 50 pages.

MBS programs
Image of page 34

Subscribe to view the full document.

© 2015 Rockwell Publishing Secondary Market Entities MBS issued by secondary market entity is guaranteed by entity. Investor receives full payment from entity even if borrowers default on some loans in pool. Guaranty fees and servicing fees subtracted before payments passed on to investors. MBS programs
Image of page 35
© 2015 Rockwell Publishing Secondary Market Entities Lender who wants to sell loan to Fannie Mae or Freddie Mac must: comply with entity’s underwriting rules when qualifying loan applicant use uniform loan documents If lender violates entity’s rules, may be required to buy loan back from entity. Standardized underwriting
Image of page 36

Subscribe to view the full document.

© 2015 Rockwell Publishing Secondary Market Entities Underwriting guidelines and uniform documents serve as quality control to ensure loans purchased by secondary market entities meet minimum standards. Inspires investor confidence. Strongly influences primary market lenders. Standardized underwriting
Image of page 37
© 2015 Rockwell Publishing Secondary Market Entities Prime loan: loan made to borrower with A credit rating. Subprime loan: loan made to less creditworthy borrower. At one time, Fannie Mae and Freddie Mac bought only prime loans. Subprime loans didn’t meet their standards. GSEs and subprime loans
Image of page 38

Subscribe to view the full document.

© 2015 Rockwell Publishing Secondary Market Entities In 2005 Fannie Mae and Freddie Mac began buying subprime loans. Primarily A-minus loans : top layer of subprime market. Encouraged by government, to help meet affordable housing goals. GSEs and subprime loans
Image of page 39
© 2015 Rockwell Publishing Secondary Market Entities Before current crisis, analysts credited Fannie Mae and Freddie Mac with: increasing home ownership rates reducing mortgage interest rates improving underwriting practices providing mortgage lenders with access to global capital markets GSEs and the economic crisis
Image of page 40

Subscribe to view the full document.

© 2015 Rockwell Publishing GSEs and the Economic Crisis Before current crisis, critics argued: claims of GSEs’ benefit to public exaggerated GSEs too large, with too much power over mortgage industry GSEs limited opportunities for other investors and enterprises GSEs not run well (2003/04 accounting scandals) Criticism before crisis began
Image of page 41
© 2015 Rockwell Publishing GSEs and the Economic Crisis By 2007, 1/3 of Fannie Mae and Freddie Mac’s new purchases and guaranties involved riskier loans. As subprime crisis unfolded, house prices dropped and foreclosure rates rose sharply. Caused GSEs’ stock prices to plunge, further undermining their financial stability. On the brink of insolvency
Image of page 42

Subscribe to view the full document.

© 2015 Rockwell Publishing GSEs and the Economic Crisis Housing and Economic Recovery Act of 2008 (HERA) created new independent regulatory agency to oversee GSEs.
Image of page 43
Image of page 44
  • Winter '15
  • Mortgage loan, Subprime mortgage crisis, Rockwell Publishing

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern