so much risk concentrated in only two companies
New York, NY (PRWEB) November 07, 2014
Debt Consolidation USA recently discussed in an article published October 30, 2014 how Fannie Mae And Freddie Mac affects the economy particularly the housing market. The article titled “Fannie Mae And Freddie Mac, Boom Or Bust?” digs into the role and purpose of the two entities to understand if they are really helping the economy or if they pose a threat to it.
The article starts off by explaining how Fannie Mae and Freddie Mac are the two major companies in the mortgage industry in the country. While almost everyone will have heard of them, there are not that many that understand what they do and what a vital role they play in financing American homeownership
Fannie Mae and Freddie Mac purchase and guarantee mortgages through the secondary mortgage market, but they do not provide mortgages. It explains further how these two institutions functions by guaranteeing a mortgage loan. It is quite different compared to how private lenders offer mortgage loans.
The way it works is that those that originally obtain the mortgage from the average homeowner sell these mortgages to Fannie Mae and Freddie Mac, or they exchange mortgage pools for mortgage backed securities which are backed by those same mortgages but that carry the guarantee of timely payment of the principal plus interest to the security holder.
The article also points outs that Fannie Mae and Freddie Mac are government sponsored enterprises, and both were created by Congress, Fannie Mae in 1938 and Freddie Mac in 1970. And in accordance with their policies, Fannie Mae and Freddie Mac have a purpose to provide a steady stream of low-cost funds for mortgages.
Many people feel that they pose too large a risk to the economy for having so much risk concentrated in only two companies as they manage an immense amount of credit and interest rate risk. Some even believe that Fannie Mae and Freddie Mac has an unfair advantage as they can offer rates that are unavailable to other corporations. To read the article, click this link: http://www.debtconsolidationusa.com/personal-finance/fannie-mae-freddie-mac-boom-bust.html