August 12, 2013

Votes for Mortgages

By Joe Dantone
Fannie and Freddie have been in operation for decades without problems until recently. Fannie began in 1938 as a quasi-governmental agency making affordable homes available to people by making the financing easier and funds more readily available by establishing a secondary market for mortgages. Previously banks had held onto their mortgages in a system called portfolio mortgages and were made mostly to their own account holders. With the homes as collateral, the banks then lent out that same money again to other local borrowers. If you remember the scene from It's a Wonderful Life when there is a run on the bank, you can visualize how that works when confidence in the system disappears. With a secondary market for mortgages, banks could recoup their money rather than keeping it tied up. The result was that banks could loan out the same funds 5-6 times. If there were a run, they could cover it. That stabilized the whole banking system in the eyes of the public. It also led to mortgage...(Read Full Article)