1. In 1932, the federal government’s intervention in the market for home ownership was desirable. Not only was it desirable, but it was needed. It has been the federal government’s desire to have every American become a part of the American dream and be a homeowner. In 1932 President Hoover signed the Federal Home Loan Bank Act to establish a series of discount banks for home mortgages. This would assist in increasing the likelihood of Americans owning a home and not feeling that they were restricted because of financial pressures. Fannie Mae, Ginnie Mae, Freddie Mac were created to help bail out banks that had a growing number of defaults in mortgages. These three enterprises made it possible for banks to offer mortgages to riskier clients who normally would not…
Fannie Mae is the common name of the Federal National Mortgage Association, also abbreviated as FNMA. It is one of two of America’s largest mortgage companies, along with Freddie Mac (Federal Home Loan Mortgage Corporation – FHLMC).1 Fannie Mae guarantees and purchases loans from mortgage lenders to help ensure families can buy new homes or refinance.2 Fannie Mae was founded in 1938 as part of Franklin Delano Roosevelt’s New Deal during the Great Depression. As borrowers began to default on mortgages during the country’s major downturn the government, led by Franklin D. Roosevelt and Congress, created Fannie Mae in order to buy the mortgages from lenders so as to free up the bank’s…
c. Many creditors are currently taking advantage of vulnerable consumers in financial crises by offering credit with extremely high interest rates and additional upfront costs. As a potential first time homebuyer there are many things that need to be made clear prior to selecting a loan. With little knowledge, as much information as possible will be beneficial to ensuring that my loan options are within a reasonable mean to repay. Many consumers find themselves swarming in debt simply because they were misinformed and…
The Fannie Mae Foundation created a guide, titled Knowing and Understanding Your Credit, to inform people on how to maintain good credit and move them closer to their dream of owning their own home. This guide covered the topics of building and maintaining a good credit as well as figuring out what kind of credit you have.…
The real estate industry is thriving with approximately sixty-eight percent of all Americans being homeowners. With low interest rates, 1st time home buyer down payment assistance programs, and government funded educational opportunities (i.e. the Home Ownership Center of Greater Cincinnati), the real estate and mortgage lending industries will continue to flourish. However, there are some unethical lending practices that are threatening the housing industry as a whole.…
In 1968, the government converted Fannie Mae into a private shareholder-owned corporation in order to remove its activity from the annual balance sheet of the federal budget.[6] Consequently, Fannie Mae ceased to be the guarantor of government-issued mortgages, and that responsibility was transferred to the new Government National Mortgage Association (Ginnie Mae). In 1970, the government created the Federal Home Loan Mortgage Corporation (FHLMC), commonly known as Freddie Mac, to compete with Fannie Mae and, thus, facilitate a more robust and efficient secondary mortgage market. Since the creation of the GSEs, there has been debate surrounding their role in the mortgage market, their relationship with the government, and whether or not they are indeed necessary. This debate gained relevance due to the collapse of the U.S. housing market and subprime mortgage crisis that began in 2007. Despite this debate, Fannie Mae, as well as Ginnie Mae and later Freddie Mac, has played an integral part in the development of the most successful mortgage market in the world which has allowed U.S. citizens to benefit from one of the highest home ownership percentages in the…
Banks likewise have an added motivating force to offer protected and practical items in particular long haul, altered rate contracts in light of the fact that they know Fannie and Freddie will probably buy them. Since Fannie and Freddie ensure installments in the occasion of a default—for an expense, obviously financial specialists don't need to stress over credit hazard, which makes contracts an especially appealing speculation. Under this framework, home loan credit was persistently accessible well into the late-1990s under terms and at costs that put feasible homeownership inside compass for most American families. Before that decade's over, nonetheless, Wall Street had made sense of how to buy and securitize contracts without requiring Fannie and Freddie as mediators, prompting a central move in the U.S. home loan market Much better, yet both organizations still have far to go.…
Was the U.S. federal government’s 1932 intervention in the market for home ownership desirable? How did the creation of Fannie Mae in 1938, Ginnie Mae in 1968, and Freddie Mac in 1970 expand homeownership and shape lending practices at banks and other mortgage lending firms?…
One part of chapter 8 that I found interesting was the conversation between Jack and Betty about buying a new and nicer house. Du Bois states, “The price was high. The bank to which Jack applied refused a mortgage loan.” (Du Bois 110). I found this especially interesting because of my family history and housing. First my father’s parents were denied a mortgage loan on the house they now own. Although my grandparents were turned away, they decided to save their money for the next two years and offered to pay for the house in cash, luckily it was still on sale. After two years of being for sale, naturally the price went down, but my grandparents paid for the house for more then what was asked the second time around because the man was so stubborn. When they offered to pay in cash, that day, the man acquiesced.…
Manufactured Homes (MH) uses the installment sales method for recognizing revenue. Using this installment sales method assumes that the customer probably will not default and there is little risk for the company. As cash is supposed to come in, revenues are matched with expenses. However, if the customer defaults, then there are many future expenses that cannot be matched with corresponding revenue. The company usually sold its installment contracts to unrelated financial institutions and was responsible for payments to the financial institution if the customer defaulted. Thus, MH bore risk for the houses it sold. MH charged its customers a portion above the market rate, and the financial institution paid MH a portion of the differential between the stated interest rate and the market rate. Therefore, interest income was a fairly important part of MH's business. MH set up a provision for losses on credit sales account based on historical performance. The company said that since its customers needed these houses, they would work especially hard because these houses were their primary residences and supported this with repossession rates that were much lower than the industry average. However, this might have been a little short sighted. MH did realize that there was a declining economy looming in the future, but we are not sure if the company realized its full effect. This declining economy might drive interest rates down, allowing people to choose conventional homes instead of mobile homes. Furthermore, a bad economy would signal less money invested in mobile homes from people who wanted a second home used for vacations. This poorer economy could also signal problems for the installment sales method, as some people might lose their jobs and not be able to pay for their homes. Repossession rates would increase, and Manufactured Homes might be stuck with many houses that it cannot sell because of the economy. These things were evident in…
institutions to facilitate home loans, allowed veterans to put down payments as low as a dollar on a house, and offered tax breaks to people who bought homes.”(42,43)…
Predatory lending is a term that many home owners are familiar with in today’s real estate market. Not only is this practice unethical, in many cases it is illegal. When financial institutions violate the consumer trust they hurt more than just the company image. This was the case in 2001 when a Citigroup consumer lending subsidiary used deceptive practices to sell unnecessary insurance coverage to minority, elderly, and uneducated home equity borrowers (Heller, M., & Garver, R., 2001). Citigroup used the information obtained for the unintended purpose of selling additional services. In this case these services were unnecessary insurance premiums that were written into the loan without disclosure to the client.…
“Fannie and Freddie Helped Spawn the Mortgage Crisis, So Did Affordable Housing Mandates” by Hans Bader January 9, 2012…
away. But the managers not only stole from Al, they stole his entire business! The case forces…
We as a group would like to express our sincere thanks to MR.KUMAR BIJOY our FINANCIAL SERVICES faculty for helping us study the subject in depth thus giving us a wholesome experience.…
