fannie mae and the credit crisis of 2008
DESCRIPTION
role fannie mae in the credit crisis of 2008TRANSCRIPT
Fannie Mae and The Credit Crisis of 2008
Emergence of Mortgage Markets
• 1900 AD - Banks, thrifts , credit unions & Fixed Rate
Mortgages
• 1938 – Creation of Fannie Mae
• 1968 – New Aeon of Mortgage Enterprise Charters -
an attempt to raise levels of home ownership
The Privileges of GSE Status
• Implicit guarantee
• Market Perception
• Government sponsored monopoly
• Maintaining Monopolies through lobbying
Fannie mae’s growth
• Creation of liquid secondary market for
mortgages
• Aggressive investments in mortgages and
mortgage backed securities
Mortgagebroker
MBS’s issuer
Mortgage lending with Securitization
Bank Homeowner
Servicer
Investor
Mortgage Pool(MBS)
MortgageMortgage
broker
Bond payments
MBS
Monthly payments
Monthly payments
Link to S14
Financial innovation• Financial innovation by rival wall street
firmso ARMo Subprime Lending
• Rise in demand for sophisticated financial
products
• Fannie Mae follows the league
Mortgage Market Funda
Housing bubble burst
Fannie Mae’s road to insolvency
Fannie mae’s FNMA crashes and gets delisted
The Party Ends When Home Prices Stagnate and Fall
Mortgage security
meltdown
General credit crisis-
worldwide financial crisis
United States Congress held
responsible
Housing bubble burst
Link to S6
Conclusion: The U.S. Congress is Largely to Blame