The proper role and scope of government

[Lamplighter]

There are several political candidates and pundits who are
advocating the elimination of Fannie Mae and Freddie Mac.

I thought it might be worthwhile to try to have a discussion
of these two entities, and the implications of keeping or eliminating them.

Here is Freddie Mac's website description of what they do:

We participate in the secondary mortgage market by purchasing
mortgage loans and mortgage-related securities for investment and by
issuing guaranteed mortgage-related securities, principally those we call PCs.

The secondary mortgage market consists of institutions engaged
in buying and selling mortgages in the form of whole loans
(i.e., mortgages that have not been securitized) and mortgage-related securities.
We do not lend money directly to homeowners.

Here is the Fannie Mae website's description of what they do:

Marketplace Liquidity

Providing Liquidity and Affordability to the Housing Market

Fannie Mae is working to help the U.S. housing market get back on stable ground.
We do this by replenishing the funds that lenders need to make new loans,
refinance existing loans, and finance multifamily housing at affordable rates.

During the housing crisis, many mortgage investors left the market
or scaled back their activity.
We remain committed to providing liquidity and stability to the housing market
in all economic conditions.

Supporting Homeownership

For Americans who are ready to buy a home, we believe they should
have access to affordable, sustainable options.
We have provided nearly $1.7 trillion in single-family funding since 2009,
while establishing stronger and more sustainable lending standards.
This has helped more than seven million families buy homes or
refinance their loans since the beginning of 2009.

Single-Family
Our single-family acquisitions include several products that address specific housing needs.
For instance, during 2010, Fannie Mae purchased:

* $831 million in mortgages targeted specifically to lower- income
and/or first-time home buyers through banks and state housing finance agencies
* $944 million in mortgages secured by manufactured homes
* $138 million in single-family mortgages in rural areas
<snip>

As I understand the operations of F&F, they are NOT the lending agency when someone buys a home.

Instead, a mortgage is developed by a bank, credit union, etc.
wherein the terms of the loan are defined, and the purchase funds are distributed to the new home owner.

Before the existence of F&F, the bank provided it's own funds and held the mortgage and processed the loan payments.
But with F&F, the bank can now sell such mortgages to F&F,
and thereby replenish the bank's funds to continue creating additional mortgages.

But, F&F do not buy these mortgages one-at-a-time.
Instead, the bank "bundles" several mortgages and establishes
the "quality" of the bundle, and then proceeds to negotiate the value with F&F.

Once F&F own these bundles of mortgages, they sell them to investors,
with assurances of value and quality... and may earn a profit during these transactions.

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OK, I hope other Dwellars will add or correct my description as needed,
and contribute to a political discussion of these institutions.
.