Tuesday, December 29, 2015

How does housing work in America? Fannie buys All of it. 2015.

How does housing work in America?

step 1: A bank or mortgage broker gives you a loan, SUPPOSEDLY you qualify for.

step 2: If its a FHA Loan:
                             The purpose of the FHA was to insure long-term, fixed-rate, amortized loans--that is, loans in which the principal was paid down steadily to zero. Once the FHA offered to insure this type of loan, the marketplace then offered this type of loan in place of the shorter balloon mortgages. Fannie Mae was created to purchase FHA-insured loans, thus freeing up more bank capital that could be invested in more mortgages. FHA SELLS THE MORTGAGE TO FANNIE MAE.
                             FHA is an insurance on the LOAN, VA loans are same.
                             Ginnie Mae purpose: Ginnie Mae does not buy or sell loans or issue mortgage-backed securities (MBS). Therefore, Ginnie Mae's balance sheet doesn't use derivatives to hedge or carry long term debt. Ginnie Mae securities are the only MBS to carry the full faith and credit guaranty of the United States government, which means that even in difficult times, an investment in Ginnie Mae MBS is one of the safest an investor can make. Ginnie Mae Guarantees FHA loans to investors.

step 3: If its a FANNIE MAE/ FREDDIE MAC loan:
                             The loan is bought by one of these two IF IT CONFORMS to fannie and freddie standards. The loan is then turned into a MBS (a group of loans) and sells the MBS to Investors Guaranteed by Fannie or Freddie.  If it does go south, Fannie uses its G-fees to eat up the bad loans and foreclose and sell the property.

step 4: If it does not fit any of the above, banks will give you a balloon or jumbo loan if you qualify for it.

So as you can see, all but balloon and jumbo loans are FANNIE LOANS in America! 2015! For last 70 years.

No matter what you hear, ALL loans in America are FANNIE MBS except Jumbo! The only exception was 2000-2007 PMBS, The cause of the disaster and Great Recession. Private MBS (PMBS) was your banks and Goldman Sachs and Morgan Stanley's of the world writing Private MBS and selling it to the world. PMBS tried to go around the system and get Fannie share of the mortgage market. How will it work? Its dead. It died with the banks all needing bailed out and Tarp keeping them from going belly up. Where did all the PMBS go in the downturn? If you had the same problem, maybe taking over Fannie and absorbing the PMBS through it would solve that problem? It did, Hamp and Harp allowed you to turn your PMBS into a Fannie MBS!
All this already happened! No one can say it did not, history does not lie.