On Jan. 5 the Federal Reserve began its first purchases of government-guaranteed mortgage securities.
It would also impede the Federal Housing Administration from originating guaranteed mortgage loans, making it very hard for lower-income citizens to buy homes.
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One way to do that is with a government guaranteed mortgage.
Whereas Fannie Mae is required by statute to have private mortgage insurance on loans with low down-payments, national banks originate billions of dollars in higher-risk mortgage loans utilising the Federal Housing Administration's government-guaranteed mortgage insurance.
The Company intends to use the proceeds from the offering and concurrent private placement to acquire its target assets, which consist of residential mortgage-backed securities issued or guaranteed by U.S. Government-sponsored entities , residential mortgage-backed securities that are not issued or guaranteed by U.S. Government-sponsored entities and other mortgage-related investments.
Additionally, policies enacted since the financial crisis of 2008 have guaranteed that, for example, virtually every single new home mortgage is being purchased or guaranteed by Fannie Mae and Freddie Mac, and the student loan industry has been nationalized.
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Today's announcement by the Fed that it will purchase direct debt obligations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks, and also mortgage backed securities guaranteed by Fannie, Freddie and Ginnie Mae, underscores our support for the housing market.
To qualify, the current mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae, and borrowers need to be mostly current on payments.
Because the capital markets believed, rightly as it turned out, that the bonds issued by Fannie and Freddie to raise money for their mortgage financing were effectively government guaranteed, the two organizations were able to raise huge sums at low interest rates to pump into these mortgages.
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When Fannie and Freddie were finally taken over by the government in 2008, more than 10 million subprime and other weak loans were either on their books or were in mortgage-backed securities they had guaranteed.
Moreover, the Fed's operation on August 10th was also slightly unorthodox, as the collateral for cash loans was entirely in mortgage-backed securities, albeit ones guaranteed by federal agencies.
Before the 2008 housing debacle, investors were pitched subprime mortgage-backed securities that appeared to offer guaranteed high returns.
But apparently, the program is still needed, and mostly for the big banks who will be guaranteed a premium price paid for selling Treasury debt and mortgage backed securities to the Federal Reserve.
And with 90% of new mortgages now guaranteed by Fannie Mae and Freddie Mac, it seems getting a mortgage may become even harder if that guarantee were removed.
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White, the authors of Guaranteed to Fail: Fannie Mae, Freddie Mac and the Debacle of Mortgage Finance.
The program has been increasingly adopted by mortgage servicers that handle deeply underwater loans which aren't guaranteed by Fannie and Freddie.
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The GSEs continue to operate and, along with other government agencies, guaranteed about 95 percent of new mortgages made in 2009, reports Inside Mortgage Finance, an industry newsletter.
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