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It just gets better and better doesn't it? What is that saying....Insanity is defined as doing the same thing over and over and expecting different results. But good news! According to the top dogs it appears the real estate market may have hit bottom and is on it's way to a recovery.
I'm kind of new to the whole real estate/mortgage thing, so maybe someone can help me sort out some simple questions here...
This is how I've come to understand it...
There's these government behemoths that give mortgages (fannie mae, freddie mac, FHA, Ginnie, whomever), correct? I want a loan, so I go ask them, they give me a loan.
What if I go ask Wachovia or BoA for a loan? Do they take my request and in turn ask one of the above? Or is it handled by them?
I suppose what I'm getting at is that there ought to be some alternative to these broken government 'systems'. I can't believe they're giving out loans with a 3% downpayment. I've been so sound and happy with the idea that it's 10%-20% or bust (which SUCKS by the way because it will take us a while to save that much and I'm impatient). End of story. Where do people (lenders or buyers or anyone else) get off thinking it's okay, in our situation, to go with anything less?
What if I go ask Wachovia or BoA for a loan? Do they take my request and in turn ask one of the above? Or is it handled by them?
Basically, the GSE's (FNM and FRE) don't make mortgages directly, they buy up mortgages in the secondary market from Wachovia and BoA. If the bank makes a loan with documentation that conforms to the GSE definitions of Prime, then they can sell off the loan to Fannie or Freddie. That way BoA can get cash for the loan and go make another loan. The commercial banks can either keep the loan on their own books, or sell it off to the GSE's.
I don't think FHA sells MBS in the secondary market. They have their own origination rules.
I'm in the 20% down camp myself but that will take time. The GSEs had much stricter guidelines than Countrywide and some others. The FHA loans do only require 3.5% down, but they also have to pay default insurance to protect against losses. To answer your question, the government "got off" on making home ownership a priority. I don't know how they got to 3.5% as a good idea.
FNMA was established back in the 30's as a government agency. It's assets were transferred to a public corporation in the 60's to get it off the Government's balance sheet. It became the first Government Sponsored Enterprise. FHLMC was subsequently established, in the early 70's to expand the mortage-backed security business.
FNMA and FHLMC buy mortages that conform to their requirements and issues mortgage-backed securities collateralized by such mortgages.
FHA insures mortgages.
GNMA does not buy mortgages or create mortgage- backed securities. Lenders apply for GNMA approval to issue GNMA mortgage -backed securities backed primarily by VA/FHA loans. GNMA's carry the full faith and credit of the U.S. Government in terms of prompt payment of principal and interest to investors, regardless of what Mr/Mrs. homeowner do, or not.
HUD is the true advocate for affordable housing at the government's expense.
The majority of homeowners in the U.S. would not be, without one or more of these entities buying, insuring and/or guaranteeing payment to investors.
Last edited by middle-aged mom; 08-11-2009 at 08:42 PM..
To answer your question, the government "got off" on making home ownership a priority.
Pre the Great Depression, people who bought property were usually required to put 50% down. Most mortgages matured in 5 years with a balloon payment. The homeowner had to either pay it off or refinance it (assuming he still qualified to do so, at current interest rates.) And in 5 years, he got to do it all over again.
Pre the Great Depression, most people were renters. About 50% of all housing lacked appropriate functional indoor plumbing.
During the Great Depression about 50% of all homes were in foreclosure. Banks would not lend anyone money to buy a home because real estate was a depreciating asset. ( sound familiar?)
The New Deal spawned endless programs focused on housing market recovery, building new homes, employing people and improving municipal infrastructures through taxation on those properties. The concept of asset securitization and fixed rate 20 year mortgages came out of these programs.
HUD has been at the forefront of most of these changes, including advocacy for low income rental housing and subsidy.
Basically, the GSE's (FNM and FRE) don't make mortgages directly, they buy up mortgages in the secondary market from Wachovia and BoA. If the bank makes a loan with documentation that conforms to the GSE definitions of Prime, then they can sell off the loan to Fannie or Freddie. That way BoA can get cash for the loan and go make another loan. The commercial banks can either keep the loan on their own books, or sell it off to the GSE's.
I don't think FHA sells MBS in the secondary market. They have their own origination rules.
I'm in the 20% down camp myself but that will take time. The GSEs had much stricter guidelines than Countrywide and some others. The FHA loans do only require 3.5% down, but they also have to pay default insurance to protect against losses. To answer your question, the government "got off" on making home ownership a priority. I don't know how they got to 3.5% as a good idea.
Thanks! It's so convoluted -- it almost sounds like money laundering in a way. Who knows where anything really came from or where it will end up.
To answer your question, the government "got off" on making home ownership a priority. I don't know how they got to 3.5% as a good idea.
It's a gamble that the net benefit of propping up house prices via taxpayer subsidies (low rates, low down payment requirements, tax refunds, and so on) is greater than the cost that falling house prices will have on banks' balance sheets. The hope is that the cost of letting more unqualified buyers get houses will be offset by the increased demand for housing that they generate. Keep your fingers crossed on that one...
While there should be concern especially with regard to fraud, FHA lending is a far cry from the subprime lending of years past. FHA has far greater requirements than the now non-existant toxic subprime loans did.
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