Government Sponsored Enterprises (GSE)
July 26, 2010
I was reading a news article this morning about the passage and signing by the president of the Financial Reform Act (This is not its official name). The news writer mentioned that GSEs were not included as part of the new regulations. Since I am not familiar with the various terms set forth in this new legislation, I do not know whether the GSEs fall under the new oversight terms.
According to Wikipedia, "Government Sponsored Enterprises are a group of financial services corporations created by the United States Congress. Their function is to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital markets more efficient and transparent."
In the housing sector there are four GSEs:
The twelve Federal Home Loan Banks (1932)
Federal National Mortgage Association (Fannie Mae) (1938-2008)
Federal Home Loan Mortgage Corporation (Freddie Mac) (1970-2008)
Government National Mortgage Association (Ginnie Mae) (1968)
Fannie Mae and Freddie Mac were put into conservatorship in September 2008 as a result of the sub prime mortgage crisis which caused the government to bail them out.
Fannie, Freddie and Ginnie all function as the secondary market for loans originated by local institutions. These local institutions sell their loans to Fannie, Freddie and Ginnie thereby replenishing their funds to make new loans. Prior to the creation of a secondary market, local financial institutions "Porfolioed" their loans. When a local institution's available supply of funds was depleted, the local institution could no longer originate loans. High demand for home loans created a supply gap. The creation of GSEs was designed to keep funds available. The system seemingly ran amok when lending standards became too lax.
As a non economist and a non financial expert, I only know that the existence of a secondary market is vital for funds to be available for the purchase of homes. Hopefully lending practices will make certain that the loans that are granted go to well qualified borrowers who can support the necessary payments. From my perspective, lending practices have become quite strict.
I was reading a news article this morning about the passage and signing by the president of the Financial Reform Act (This is not its official name). The news writer mentioned that GSEs were not included as part of the new regulations. Since I am not familiar with the various terms set forth in this new legislation, I do not know whether the GSEs fall under the new oversight terms.
According to Wikipedia, "Government Sponsored Enterprises are a group of financial services corporations created by the United States Congress. Their function is to enhance the flow of credit to targeted sectors of the economy and to make those segments of the capital markets more efficient and transparent."
In the housing sector there are four GSEs:
The twelve Federal Home Loan Banks (1932)
Federal National Mortgage Association (Fannie Mae) (1938-2008)
Federal Home Loan Mortgage Corporation (Freddie Mac) (1970-2008)
Government National Mortgage Association (Ginnie Mae) (1968)
Fannie Mae and Freddie Mac were put into conservatorship in September 2008 as a result of the sub prime mortgage crisis which caused the government to bail them out.
Fannie, Freddie and Ginnie all function as the secondary market for loans originated by local institutions. These local institutions sell their loans to Fannie, Freddie and Ginnie thereby replenishing their funds to make new loans. Prior to the creation of a secondary market, local financial institutions "Porfolioed" their loans. When a local institution's available supply of funds was depleted, the local institution could no longer originate loans. High demand for home loans created a supply gap. The creation of GSEs was designed to keep funds available. The system seemingly ran amok when lending standards became too lax.
As a non economist and a non financial expert, I only know that the existence of a secondary market is vital for funds to be available for the purchase of homes. Hopefully lending practices will make certain that the loans that are granted go to well qualified borrowers who can support the necessary payments. From my perspective, lending practices have become quite strict.
posted by shirley harry at 8:00 AM
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