Get Focusing On Fannie And Freddie: The Dilemmas Of Reforming ...

As financial markets in the summer of 2008 turned against Fannie Mae and Freddie Mac, the federal government initially responded by passing the Housing and Economic Recovery Act (HERA), signed into law on July 30, 2008, which among many other pro- visions temporarily gave the US Treasury unlimited investment authority ... The Rescue of Fannie Mae and Freddie Mac American Economic Association https://pubs.aeaweb.org › doi › jep.29.2.25 American Economic Association https://pubs.aeaweb.org › doi › jep.29.2.25 PDF

Answer and Explanation: In 2008, The Federal National Mortgage Association (Fannie Mae) and the Federal Loan Mortgage Association (Freddie Mac) faced huge financial problems because they bought risky subprime mortgages. A subprime mortgage is a loan that is granted to people who have a poor credit score. Fannie Mae and Freddie Mac experienced financial problems ... study.com https://homework.study.com › explanation › fannie-mae-... study.com https://homework.study.com › explanation › fannie-mae-...

They perform an important role in the nation's housing finance system – to provide liquidity, stability and affordability to the mortgage market. They provide liquidity (ready access to funds on reasonable terms) to the thousands of banks, savings and loans, and mortgage companies that make loans to finance housing.

Fannie Mae and Freddie Mac pumped more and more money into the U.S. home finance system in the years leading up to the financial crisis, buying an outsized number of mortgages on the secondary market. This helped support the bubble in home prices that emerged in 2005 through 2007.

They loaded up on subprime, interest-only, or negative amortization mortgages—loans more typical of banks and unregulated mortgage brokers. Fannie and Freddie made things worse by their use of derivatives to hedge the interest-rate risk of their portfolios.

Concurrently, the Treasury entered into senior preferred stock purchase agreements with each institution. Under these agreements, U.S. taxpayers ultimately injected $187.5 billion into Fannie Mae and Freddie Mac.

They perform an important role in the nation's housing finance system – to provide liquidity, stability and affordability to the mortgage market. They provide liquidity (ready access to funds on reasonable terms) to the thousands of banks, savings and loans, and mortgage companies that make loans to finance housing. About Fannie Mae & Freddie Mac Federal Housing Finance Agency (.gov) https://.fhfa.gov › about-fannie-mae-freddie-mac Federal Housing Finance Agency (.gov) https://.fhfa.gov › about-fannie-mae-freddie-mac

While Fannie and Freddie did hold some subprime mortgage-backed securities in their investment portfolios—many of which qualified for the affordable housing goals—these investments lagged behind the rest of the market and made up only a tiny fraction of total subprime lending during the housing bubble. 7 Things You Need to Know About Fannie Mae and Freddie Mac Center for American Progress https://.americanprogress.org › article › 7-things-... Center for American Progress https://.americanprogress.org › article › 7-things-...