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94-663: In its role as regulator, it regulates Fannie Mae , Freddie Mac , and the 11 Federal Home Loan Banks (FHLBanks, or FHLBank System). It is wholly separate from the Federal Housing Administration , which largely provides mortgage insurance . In September 2019, the Fifth Circuit Court of Appeals , in an en banc opinion, ruled that the structure of the FHFA violated constitutional separation of powers because its director could not be removed by

188-500: A mortgage-backed security . Ginnie Mae had guaranteed the first mortgage pass-through security of an approved lender in 1968 and in 1971 Freddie Mac issued its first mortgage pass-through, called a participation certificate , composed primarily of private mortgage loans. In 1992, President George H.W. Bush signed the Housing and Community Development Act of 1992 . The Act amended the charter of Fannie Mae and Freddie Mac to reflect

282-839: A central role in the US housing finance system". The US Treasury Department and the Federal Reserve took steps to bolster confidence in the corporations, including granting both corporations access to Federal Reserve low-interest loans (at similar rates as commercial banks) and removing the prohibition on the Treasury Department to purchase the GSEs' stock. Despite these efforts, by August 2008, shares of both Fannie Mae and Freddie Mac had tumbled more than 90% from their one-year prior levels. On July 11, 2008, The New York Times reported that U.S. government officials were considering

376-399: A global scale. The Administration PR effort was not enough, by itself, to save the GSEs. Their government directive to purchase bad loans from private banks, in order to prevent these banks from failing, as well as the 20 top banks falsely classifying loans as AAA, caused instability. Paulson's plan was to go in swiftly and seize the two GSEs, rather than provide loans as he did for AIG and

470-415: A government rescue similar to that of the savings and loan industry in the 1980s." In 2000, because of a re-assessment of the housing market by HUD , anti-predatory lending rules were put into place that disallowed risky, high-cost loans from being credited toward affordable housing goals. In 2004, these rules were dropped and high-risk loans were again counted toward affordable housing goals. The intent

564-463: A limit on the maximum sized loan they will guarantee. This is known as the "conforming loan limit". The conforming loan limit for Fannie Mae, along with Freddie Mac, is set by Office of Federal Housing Enterprise Oversight (OFHEO), the regulator of both GSEs. OFHEO annually sets the limit of the size of a conforming loan based on the October to October changes in mean home price, above which a mortgage

658-510: A loan is conforming; Fannie Mae followed this program up in 2004 with Custom DU, which allows lenders to set custom underwriting rules to handle nonconforming loans as well. The secondary market for nonconforming loans includes jumbo loans , which are loans larger than the maximum that Fannie Mae and Freddie Mac will purchase. In early 2008, the decision was made to allow TBA (To-be-announced)-eligible mortgage-backed securities to include up to 10% "jumbo" loans. Fannie Mae and Freddie Mac have

752-424: A loan-to-values over 80% without mortgage insurance or a repurchase agreement with the lender; however, in 2006 and 2007 Fannie Mae did purchase subprime and Alt-A loans as investments. Fannie Mae is a purchaser of mortgages loans and the mortgages that secure them, which it packages into mortgaged-backed securities (MBS). Fannie Mae buys loans from approved mortgage sellers and securitizes them; it then sells

846-440: A percent). Indeed, in 2008, since the demand for bonds not guaranteed by GSEs was almost non-existent, non-conforming loans were priced nearly 1% to 1.5% higher than conforming loans. Originally, Fannie had an 'explicit guarantee' from the government; if it got in trouble, the government promised to bail it out. This changed in 1968. Ginnie Mae was split off from Fannie. Ginnie retained the explicit guarantee. Fannie, however, became

940-558: A plan for the U.S. government to take over Fannie Mae and/or Freddie Mac should their financial situations worsen due to the U.S. housing crisis. Fannie Mae and smaller Freddie Mac owned or guaranteed a massive proportion of all home loans in the United States and so were especially hard hit by the slump. The government officials also stated that the government had also considered calling for explicit government guarantee through legislation of $ 5 trillion on debt owned or guaranteed by

1034-476: A precipitous increase in home foreclosures. As a result, home prices declined as increasing foreclosures added to the already large inventory of homes and stricter lending standards made it more and more difficult for borrowers to get loans. This depreciation in home prices led to growing losses for the GSEs, which back the majority of US mortgages. In July 2008, the government attempted to ease market fears by reiterating their view that "Fannie Mae and Freddie Mac play

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1128-614: A private corporation, chartered by Congress and with a direct line of credit to the US Treasury. It was its nature as a Government Sponsored Enterprise (GSE) that provided the 'implied guarantee' for their borrowing. The charter also limited their business activity to the mortgage market. In this regard, although they were a private company, they could not operate like a regular private company. Fannie Mae received no direct government funding or backing; Fannie Mae securities carried no actual explicit government guarantee of being repaid. This

1222-536: A single Director that can only be removed from office "for cause" and did not give the option for the President to remove the person "at will". The Supreme Court agreed that this structure was unconstitutional as it violated the separation of powers between the executive and legislative branches. The Supreme Court ruled that the Director position of CFPB must be also removable by will, but otherwise did not challenge

1316-651: A total of $ 136.4 billion in payments to the Treasury. On May 11, 2015 The Wall Street Journal reported that A U.S. District Court judge said Nomura Holdings Inc. was not truthful in describing mortgage-backed securities sold to Fannie Mae and Freddie Mac , giving a victory to the companies' conservator, the Federal Housing Finance Agency (FHFA). Judge Denise Cote asked the FHFA to propose updated damages to be paid by Nomura and co-defendant RBS Securities Inc. , which underwrote some of

1410-473: A total of US$ 10.7 trillion in anticipation of the potential need for the Treasury to have the flexibility to support the federal home loan banks. On June 16, 2010, Fannie Mae and Freddie Mac announced their stocks would be delisted from the NYSE. The Federal Housing Finance Agency directed the delisting after Fannie's stock traded below $ 1 a share for over 30 days. Since then the stocks have continued to trade on

1504-555: A variety of violations of federal securities law and common law and paint "a damning portrait of the excesses of the housing bubble." The suits seek a variety of damages and civil penalties. UBS Agrees to Pay $ 1.435 Billion to Resolve Claims That It Made Misrepresentations in the Sale of Residential Mortgage-Backed Securities The Federal Housing Finance Agency initiated litigation against 18 financial institutions involving allegations of securities law violations and, in some instances, fraud in

1598-588: Is a financial and accounting term for the difference between the duration of assets and liabilities, and is typically used by banks, pension funds, or other financial institutions to measure their risk due to changes in the interest rate. "The company said that in April its average duration gap widened to plus 3 months in April from zero in March." "The Washington-based company aims to keep its duration gap between minus 6 months to plus 6 months. From September 2003 to March,

1692-505: Is considerably weaker than that which governs other large, complex financial institutions." The legislation met with opposition from both Democrats and Republicans at that point and the Senate never took up the House passed version for consideration after that. Following their mission to meet federal Housing and Urban Development (HUD) housing goals, GSEs such as Fannie Mae, Freddie Mac and

1786-498: Is considered a non-conforming jumbo loan . The conforming loan limit is 50 percent higher in Alaska and Hawaii. The GSEs only buy loans that are conforming to repackage into the secondary market, lowering the demand for non-conforming loans. By virtue of the law of supply and demand, then, it is harder for lenders to sell these loans in the secondary market; thus these types of loans tend to cost more to borrowers (typically 1/4 to 1/2 of

1880-646: Is the Federal Home Loan Mortgage Corporation (FHLMC), better known as Freddie Mac . In 2024, with over $ 4.3 trillion in assets, Fannie Mae is the largest company in the United States and the fifth largest company in the world, by assets. Fannie Mae was ranked number 27 on the Fortune 500 rankings of the largest United States corporations by total revenue and was ranked number 58 on the Fortune Global 500 rankings of

1974-736: Is the only home-loan agency explicitly backed by the full faith and credit of the United States government. In 1970, the federal government authorized Fannie Mae to purchase conventional loans, i.e. those not insured by the FHA, VA, or FmHA, and created the Federal Home Loan Mortgage Corporation (FHLMC), colloquially known as Freddie Mac, to compete with Fannie Mae and thus facilitate a more robust and efficient secondary mortgage market. That same year FNMA went public on New York and Pacific Exchanges. In 1981, Fannie Mae issued its first mortgage pass-through and called it

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2068-516: The Consumer Financial Protection Bureau , that the inability for the President to terminate the FHFA director beyond "for cause" was unconstitutional, but otherwise left the agency's power as is. President Biden replaced Calabria with Sandra L. Thompson as Acting Director, who is expected to end Calabria's policy of phasing out the conservatorship. Brian M. Tomney was nominated by President Joe Biden and confirmed by

2162-544: The Department of Housing and Urban Development (HUD) and approved by Congress. The initial annual goal for low-income and moderate-income mortgage purchases for each GSE was 30% of the total number of dwelling units financed by mortgage purchases and increased to 55% by 2007. In 1999, Fannie Mae came under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers by increasing

2256-546: The Federal Home Loan Mortgage Corporation (Freddie Mac) had owned or guaranteed about half of the U.S.'s $ 12 trillion mortgage market (equivalent to $ 16,680,000,000,000 in 2023). If they were to collapse, mortgages would be harder to obtain and much more expensive. Fannie and Freddie bonds were owned by everyone from the Chinese government , to money market funds , to the retirement funds of hundreds of millions of people. If they went bankrupt there would be mass upheaval on

2350-575: The Great Depression as part of the New Deal , the corporation's purpose is to expand the secondary mortgage market by securitizing mortgage loans in the form of mortgage-backed securities (MBS), allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on locally based savings and loan associations (or "thrifts"). Its brother organization

2444-713: The Over-the-Counter Bulletin Board . In May 2013, Fannie Mae announced that it is going to pay a dividend of $ 59.4 billion (equivalent to $ 76,620,000,000 in 2023) to the United States Treasury. In 2014, gross flows were: Fannie Mae's 2014 financial results enabled it to pay $ 20.6 billion in dividends to Treasury for the year, resulting in a cumulative total of $ 134.5 billion in dividends through December 31, 2014 – approximately $ 18 billion more than Fannie Mae received in support. As of March 31, 2015, Fannie Mae expects to have paid

2538-568: The separation of powers ; the FHFA shares a similar structure as the CFPB. The case extends the legal challenge to the federal takeover of Fannie Mae and Freddie Mac in 2008. In a two-part decision, the Supreme Court ruled that the restriction on removal of the FHFA director by the President was unconstitutional in light of Seila Law , and secondly, dismissed the lawsuit brought against the FHFA by shareholders of Fannie Mae and Freddie Mac as

2632-547: The 1968 change, arising from the Housing and Urban Development Act of 1968 , Fannie Mae's predecessor (also called Fannie Mae) was split into the current Fannie Mae and the Government National Mortgage Association ("Ginnie Mae"). Ginnie Mae, which remained a government organization, guarantees FHA-insured mortgage loans as well as Veterans Administration (VA) and Farmers Home Administration (FmHA) insured mortgages. As such, Ginnie Mae

2726-707: The Court ruled 7–2 to uphold the Fifth Circuit's decision that, as with Seila Law and the CFPB, the inability for the President to terminate the director of FHFA beyond "for cause" was unconstitutional. Related to the standing of the Fannie Mae and Freddie Mac shareholders, the Court was unanimous in that the FHFA's actions in taking over the GSEs was outlined by congressional authority in the Recovery Act of 2008, along with an "anti-injunction clause," and, thus,

2820-522: The Democratic Congress' view that the GSEs "have an affirmative obligation to facilitate the financing of affordable housing for low- and moderate-income families in a manner consistent with their overall public purposes, while maintaining a strong financial condition and a reasonable economic return". For the first time, the GSEs were required to meet "affordable housing goals" set annually by

2914-520: The FDIC Bank Holding Company Act that govern the solvency of financial institutions. The regulations require normal financial institutions to maintain a capital/asset ratio greater than or equal to 3%. The GSEs, Fannie Mae and Freddie Mac, are exempt from this capital/asset ratio requirement and can, and often do, maintain a capital/asset ratio less than 3%. The additional leverage allows for greater returns in good times, but put

Federal Housing Finance Agency - Misplaced Pages Continue

3008-454: The FHFA, which alleged that the companies lied about the quality of the loans underlying the securities. During the nonjury trial, lawyers for the FHFA said that Nomura and RBS inflated values of homes behind some mortgages and sometimes said a home was owner-occupied when it was not. Fannie Mae makes money partly by borrowing at low rates, and then reinvesting its borrowings into whole mortgage loans and mortgage backed securities. It borrows in

3102-442: The FHFA. The action was "one of the most sweeping government interventions in private financial markets in decades". U.S. Treasury Secretary Henry M. Paulson , appearing at the same press conference, stated that placing the two GSEs into conservatorship was a decision he fully supported, and said that he advised "that conservatorship was the only form in which I would commit taxpayer money to the GSEs." He further said that "I attribute

3196-519: The FHFB was unconstitutional. Both sides of Collins petitioned to the Supreme Court in 2019 to hear the case; the shareholders sought to resolve the split in the Circuit Courts as well as to question whether any decisions – including the profit taking decision 2012 – made under the unconstitutional structure should be reversed, while the government challenged the Fifth Circuit's ruling. Following

3290-803: The Federal Home Loan Banks (FHLBanks) had striven to improve home ownership of low and middle income families, underserved areas, and generally through special affordable methods such as "the ability to obtain a 30-year fixed-rate mortgage with a low down payment ... and the continuous availability of mortgage credit under a wide range of economic conditions". Then in 2003–2004, the subprime mortgage crisis began. The market shifted away from regulated GSEs and radically toward Mortgage Backed Securities (MBS) issued by unregulated private-label securitization (PLS) conduits, typically operated by investment banks. As loan originators began to distribute more and more of their loans through private label PLS's,

3384-597: The Federal Loan Agency as a constituent unit in 1950. In 1954, an amendment known as the Federal National Mortgage Association Charter Act made Fannie Mae into "mixed-ownership corporation", meaning that federal government held the preferred stock while private investors held the common stock; in 1968 it converted to a privately held corporation, to remove its activity and debt from the federal budget . In

3478-498: The Finance Board remain in effect until modified or superseded. On the day of the law's signing, former Director James Lockhart stated: For more than two years as Director of OFHEO I have worked to help create FHFA so that this new GSE regulator has far greater authorities than its predecessors. As Director of FHFA, I commit that we will use these authorities to ensure that the housing GSEs provide stability and liquidity to

3572-727: The GSEs guaranteed the performance of their mortgage-backed securities (MBSs), private securitizers generally did not, and might only retain a thin slice of risk. Often, banks would offload this risk to insurance companies or other counterparties through credit default swaps , making their actual risk exposures extremely difficult for investors and creditors to discern. The shift toward riskier mortgages and private label MBS distribution occurred as financial institutions sought to maintain earnings levels that had been elevated during 2001–2003 by an unprecedented refinancing boom due to historically low interest rates. Earnings depended on volume, so maintaining elevated earnings levels necessitated expanding

3666-432: The GSEs lost the ability to monitor and control loan originators. Competition between the GSEs and private securitizers for loans further undermined GSEs' power and strengthened mortgage originators. This contributed to a decline in underwriting standards and was a major cause of the financial crisis. Investment bank securitizers were more willing to securitize risky loans because they generally retained minimal risk. Whereas

3760-895: The Sveriges Riksbank Prize in Economic Sciences, has called FHLMC and FNMA "implicitly taxpayer-backed agencies". The Economist has referred to "the implicit government guarantee" of FHLMC and FNMA. In testimony before the House and Senate Banking Committee in 2004, Alan Greenspan expressed the belief that Fannie Mae's (weak) financial position was the result of markets believing that the U.S. Government would never allow Fannie Mae (or Freddie Mac) to fail. Fannie Mae and Freddie Mac were allowed to hold less capital than normal financial institutions: e.g., they were allowed to sell mortgage-backed securities with only half as much capital backing them up as would be required of other financial institutions. Regulations exist through

3854-513: The U.S. Senate to serve as Inspector General for the Federal Housing Finance Agency. Sworn into office on March 14, 2022, Tomney is the third Senate confirmed Inspector General for FHFA. Laura S. Wertheimer was nominated as Inspector General of the Federal Housing Finance Agency by President Barack Obama and confirmed by the U.S. Senate on September 17, 2015. On June 29, 2021, Wertheimer announced she would be leaving

Federal Housing Finance Agency - Misplaced Pages Continue

3948-410: The United States housing and credit markets flexibility and liquidity. In order for Fannie Mae to provide its guarantee to mortgage-backed securities it issues, it sets the guidelines for the loans that it will accept for purchase, called "conforming" loans. Fannie Mae produced an automated underwriting system (AUS) tool called Desktop Underwriter (DU) which lenders can use to automatically determine if

4042-415: The borrower pool using lower underwriting standards and new products that the GSEs would not (initially) securitize. Thus, the shift away from GSE securitization to private-label securitization (PLS) also corresponded with a shift in mortgage product type, from traditional, amortizing, fixed-rate mortgages (FRMs) to nontraditional, structurally riskier, nonamortizing, adjustable-rate mortgages (ARM's), and in

4136-500: The companies at greater risk in bad times, such as during the subprime mortgage crisis . FNMA is exempt from state and local taxes, except for certain taxes on real estate. In addition, FNMA and FHLMC are exempt from SEC filing requirements; they file SEC 10-K and 10-Q reports, but many other reports, such as certain reports regarding their REMIC mortgage securities, are not filed. Lastly, money market funds have diversification requirements, so that not more than 5% of assets may be from

4230-402: The company from building capital and is excessive governmental overreach. As the case progressed, the Supreme Court heard Seila Law LLC v. Consumer Financial Protection Bureau . In this case, the structure of the Consumer Financial Protection Bureau (CFPB) was called into question. Like FHFA, the CFPB was formed by legislation passed by Congress, and specified that it was to be overseen by

4324-437: The company. The authority of the U.S. Treasury to advance funds for the purpose of stabilizing Fannie Mae, or Freddie Mac is limited only by the amount of debt that the entire federal government is permitted by law to commit to. The July 30, 2008, law enabling expanded regulatory authority over Fannie Mae and Freddie Mac increased the national debt ceiling by US$ 800 billion (equivalent to $ 1,111,800,000,000 in 2023), to

4418-494: The credit system and further exacerbated the crisis and caused a recession. Congress passed the Housing and Economic Recovery Act of 2008 in July of that year to try to stave off the effects of the recession. Among the law's goals included the formation of the Federal Housing Finance Agency (FHFA), merging the existing Federal Housing Finance Board (FHFB) and Office of Federal Housing Enterprise Oversight (OFHEO). The new FHFA

4512-622: The debt markets by selling bonds, and provides liquidity to loan originators by purchasing whole loans. It purchases whole loans and then securitizes them for the investment market by creating MBS that are either retained or sold. As a Government Sponsored Enterprise, or GSE, Fannie Mae is compelled by law to provide liquidity to loan originators in all economic conditions. It must legally ignore adverse market conditions which appear to be unprofitable. If there are loans available for purchase that meet its predetermined underwriting standards, it must purchase them if no other buyers are available. Because of

4606-477: The executive management to sign over the companies to the conservator by (a), and c) the gross violation of the ( fifth amendment ) taking clause. On September 7, 2008, James Lockhart, director of the Federal Housing Finance Agency (FHFA), announced that Fannie Mae and Freddie Mac were being placed into conservatorship of the FHFA. The action was "one of the most sweeping government interventions in private financial markets in decades". Lockhart also dismissed

4700-496: The firms' chief executive officers and boards of directors, and caused the issuance to the Treasury new senior preferred stock and common stock warrants amounting to 79.9% of each GSE. The value of the common stock and preferred stock to pre-conservatorship holders was greatly diminished by the suspension of future dividends on previously outstanding stock, in the effort to maintain the value of company debt and of mortgage-backed securities. FHFA stated that there are no plans to liquidate

4794-492: The first thirty years following its inception, Fannie Mae held a monopoly over the secondary mortgage market. Other considerations may have motivated the New Deal focus on the housing market: about a third of the nation's unemployed were in the building trade, and the government had a vested interest in getting them back to work by giving them homes to build. Fannie Mae was acquired by the Housing and Home Finance Agency from

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4888-514: The full Senate for a vote. Sen. John McCain's decision to become a cosponsor of S.190 almost a year later in 2006 was the last action taken regarding Sen. Hagel's bill in spite of developments since clearing the Senate Committee. McCain pointed out that Fannie Mae's regulator reported that profits were "illusions deliberately and systematically created by the company's senior management" in his floor statement giving support to S.190. At

4982-575: The function of the CFPB since they had found its purpose to be severable from the implementation of the Director position. Seila Law progressed through lower courts at the same time as Collins . Seila Law had been heard in the Ninth Circuit , which had ruled that the structure of the CFPB was constitutional. Collins was heard in the Fifth Circuit , which ruled both on its initial three-judge panel and at an en banc hearing that

5076-469: The gap has run between plus to minus one month." In late 2004, Fannie Mae was under investigation for its accounting practices. The Office of Federal Housing Enterprise Oversight released a report on September 20, 2004, alleging widespread accounting errors. Fannie Mae was expected to spend more than $ 1 billion (equivalent to $ 1,454,000,000 in 2023) in 2006 alone to complete its internal audit and bring it closer to compliance. The necessary restatement

5170-531: The head of our single-family mortgage business, publicly stated, "One of the things we don't feel good about right now as we look into this marketplace is more homebuyers being put into programs that have more risk. Those products are for more sophisticated buyers. Does it make sense for borrowers to take on risk they may not be aware of? Are we setting them up for failure? As a result, we gave up significant market share to our competitors." Alex Berenson of The New York Times reported in 2003 that Fannie Mae's risk

5264-664: The homebuyers can afford their loans over the long term. We sought to bring the standards we apply to the prime space to the subprime market with our industry partners primarily to expand our services to underserved families. Unfortunately, Fannie Mae-quality, safe loans in the subprime market did not become the standard, and the lending market moved away from us. Borrowers were offered a range of loans that layered teaser rates , interest-only, negative amortization and payment options and low-documentation requirements on top of floating-rate loans. In early 2005 we began sounding our concerns about this "layered-risk" lending. For example, Tom Lund,

5358-504: The implied guarantee, as well as various special treatments given to Fannie by the government, greatly enhanced its success. For example, the implied guarantee allowed Fannie Mae and Freddie Mac to save billions in borrowing costs, as their credit rating was very good. Estimates by the Congressional Budget Office and the Treasury Department put the figure at about $ 2 billion per year. Vernon L. Smith, recipient of

5452-581: The investments. At the outset of the case, the FHFA asked for about $ 1.1 billion. The order brought to conclusion a rare trial addressing alleged mortgage-related infractions committed during the housing boom. Over the past few years, more than a dozen firms chose to settle similar allegations brought by the FHFA rather than face a court battle. The settlements have brought Fannie and Freddie $ 18 billion in penalties. In her decision, Judge Cote wrote that Nomura, in offering documents for mortgage-backed securities sold to Fannie and Freddie, didn't accurately describe

5546-470: The largest global corporations by total revenue. In terms of profit, Fannie Mae is the 15th most profitable company in the United States and the 33rd most profitable in the world. Historically, most housing loans in the early 1900s in the United States were short term mortgage loans with balloon payments . The Great Depression weakened the U.S. housing market, as people lost their jobs and were unable to make payments. By 1933, an estimated 20 to 25% of

5640-518: The loans' quality. "The magnitude of falsity, conservatively measured, is enormous", she wrote. During the boom, Fannie and Freddie invested billions of dollars in mortgage-backed securities issued by such companies as Nomura. Those investments bolstered profits but, in the bust, contributed to steep losses that ultimately resulted in the companies' 2008 government takeover. Nomura and RBS were two of 18 financial institutions, including Bank of America Corp. and Goldman Sachs Group Inc. , targeted in 2011 by

5734-419: The lower courts should not have allowed their case to proceed. Justice Samuel Alito wrote the majority opinion to which all Justices had joined in full or in part. Justices Clarence Thomas , Neil Gorsuch , and Elena Kagan wrote concurring opinions. Justice Sonia Sotomayor wrote an opinion concurring in part and dissenting in part, related to the FHFA directorship, joined by Justice Stephen Breyer . On

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5828-642: The major banks; he told president Bush that "the first sound they hear will be their heads hitting the floor", in a reference to the French Revolution . The major banks have since been sued by the Feds for a sum of $ 200,000,000, and some of the major banks have already settled. In addition, a lawsuit has been filed against the federal government by the shareholders of Fannie Mae and Freddie Mac, for a) creating an environment by which Fannie and Freddie would be unable to meet their financial obligations b) forcing

5922-477: The mortgage market, support affordable housing and operate safely and soundly. FHFA director Lockhart transmitted a "notice of establishment," for publication in the Federal Register on September 4, 2008. The notice formally announced the agency's existence and authority to act. On September 7, 2008, FHFA director Lockhart announced he had put Fannie Mae and Freddie Mac under the conservatorship of

6016-622: The nation's outstanding mortgage debt was in default. This resulted in foreclosures in which nearly 25% of America's homeowners lost their homes to banks. To address this, Fannie Mae was established by the U.S. Congress in 1938 by amendments to the National Housing Act as part of Franklin Delano Roosevelt 's New Deal . Originally chartered as the National Mortgage Association of Washington,

6110-590: The need for today's action primarily to the inherent conflict and flawed business model embedded in the GSE structure, and to the ongoing housing correction." In the announcement, Lockhart indicated the following items in the plan of action for the conservatorship: The FHFA in 2011 filed suit first against UBS then against 17 other financial institutions accusing them of misrepresenting about $ 200 billion in mortgage-backed securities sold to Fannie Mae and Freddie Mac. The suits, some of which name individual defendants, allege

6204-399: The next FHFA head. After Democrats eliminated rules allowing filibusters on executive branch nominations , the U.S. Senate confirmed Watt on December 10, 2013. On December 21, 2018, President Donald Trump designated Comptroller of the currency Joseph Otting to be Acting Director of FHFA upon completion of Director Watt's term, effective January 7, 2019. In April 2019, Mark A. Calabria

6298-430: The organization's explicit purpose was to provide local banks with federal money to finance home loans in an attempt to raise levels of home ownership and the availability of affordable housing. Fannie Mae created a liquid secondary mortgage market and thereby made it possible for banks and other loan originators to issue more housing loans, primarily by buying Federal Housing Administration (FHA) insured mortgages. For

6392-576: The place of federal funds the government provides considerable unpriced benefits to the enterprises ... Government-sponsored enterprises are costly to the government and taxpayers ... the benefit is currently worth $ 6.5 billion annually." FNMA is a financial corporation which uses derivatives to "hedge" its cash flow. Derivative products it uses include interest rate swaps and options to enter interest rate swaps ("pay-fixed swaps", "receive-fixed swaps", " basis swaps ", " interest rate caps and swaptions ", " forward starting swaps "). Duration gap

6486-450: The position on July 30, 2021. This followed calls from Republican Senators Chuck Grassley and Ron Johnson for her removal in the preceding weeks, and a critical CIGIE report released on April 29, 2021. Fannie Mae The Federal National Mortgage Association ( FNMA ), commonly known as Fannie Mae , is a United States government-sponsored enterprise (GSE) and, since 1968, a publicly traded company . Founded in 1938 during

6580-620: The president. The U.S. Supreme Court affirmed that part of the holding. The law establishing the FHFA is the Federal Housing Finance Regulatory Reform Act of 2008, which is Division A of the larger Housing and Economic Recovery Act of 2008 , Public Law 110-289, signed on July 30, 2008 by President George W. Bush . One year after the law was signed, the OFHEO and the FHFB went out of existence. All existing regulations, orders and decisions of OFHEO and

6674-416: The rate at which it can 'lend'. This was called "The big, fat gap" by Alan Greenspan. By August 2008, Fannie Mae's mortgage portfolio was in excess of $ 700 billion (equivalent to $ 972,800,000,000 in 2023). Fannie Mae also earns a significant portion of its income from guaranty fees it receives as compensation for assuming the credit risk on mortgage loans underlying its single-family Fannie Mae MBS and on

6768-526: The ratios of their loan portfolios in distressed inner city areas designated in the Community Reinvestment Act (CRA) of 1977. In 1999, The New York Times reported that with the corporation's move towards the subprime market "Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting

6862-503: The resultant mortgage-backed security to investors in the secondary mortgage market , along with a guarantee that the stated principal and interest payments will be timely passed through to the investor. . In addition, Fannie MBS, like those of Freddie Mac MBS and Ginnie Mae MBS, are eligible to be traded in the "to-be-announced" or "TBA" market. By purchasing the mortgages, Fannie Mae and Freddie Mac provide banks and other financial institutions with fresh money to make new loans. This gives

6956-517: The ruling in Seila Law issued in June 2020, the Supreme Court agreed to hear the case. Oral hearings for the case were held on December 9, 2020. The Supreme Court issued its decision on June 23, 2021. It ruled on two areas which affirmed, reversed, and vacated the Fifth Circuit's decision in parts and remanded the case for further review. On the subject of the constitutionality of the FHFA director,

7050-408: The sale of private-label securities (PLS) to Fannie Mae and Freddie Mac. Below is a list of the cases, with amounts of any settlements reached in 2013 and 2014. Non-Litigation PLS Settlements Wells Fargo Bank, N.A. $ 335.23 million Upon Lockhart's departure, Edward DeMarco was appointed Acting Director of FHFA on August 25, 2009. On May 1, 2013, President Barack Obama nominated Mel Watt as

7144-534: The same issuer. That is, a worst-case default would drop a fund not more than five percent. However, these rules do not apply to Fannie and Freddie. It would not be unusual to find a fund that had the vast majority of its assets in Fannie and Freddie debt. In 1996, the Congressional Budget Office wrote "there have been no federal appropriations for cash payments or guarantee subsidies. But in

7238-532: The same time, the House also introduced similar legislation, the Federal Housing Finance Reform Act of 2005 (H.R. 1461), in the spring of 2005. The House Financial Services Committee had crafted changes and produced a committee report by July 2005 for the legislation. It was passed by the House in October in spite of President George W. Bush's opposition to the House version, which stated: "The regulatory regime envisioned by H.R. 1461

7332-418: The single-family mortgage loans held in its retained portfolio. Investors, or purchasers of Fannie Mae MBSs, are willing to let Fannie Mae keep this fee in exchange for assuming the credit risk; that is, Fannie Mae's guarantee that the scheduled principal and interest on the underlying loan will be paid even if the borrower defaults. Fannie Mae's charter has historically prevented it from guaranteeing loans with

7426-404: The size, scale, and scope of the United States single-family residential and commercial residential markets, market participants viewed Fannie Mae corporate debt as having a very high probability of being repaid. Fannie Mae is able to borrow very inexpensively in the debt markets as a consequence of market perception. There usually exists a large difference between the rate at which it can borrow and

7520-421: The start of a sharp deterioration in mortgage underwriting standards. The growth of PLS, however, forced the GSEs to lower their underwriting standards in an attempt to reclaim lost market share to please their private shareholders. Shareholder pressure pushed the GSEs into competition with PLS for market share, and the GSEs loosened their guarantee business underwriting standards in order to compete. In contrast,

7614-408: The sub-prime era, every Fannie Mae prospectus read in bold, all-caps letters: "The certificates and payments of principal and interest on the certificates are not guaranteed by the United States, and do not constitute a debt or obligation of the United States or any of its agencies or instrumentalities other than Fannie Mae." (Verbiage changed from all-caps to standard case for readability). However,

7708-427: The takeover of these firms was an established power of the agency under terms of the Housing and Economic Recovery Act of 2008 . Part of the contributing factors to the subprime mortgage crisis from 2007 to 2010 was the role of Fannie Mae and Freddie Mac , for-profit government sponsored enterprises (GSE) that purchase mortgages and backed almost half of the mortgages in the United States. Analysis had found that

7802-448: The two GSEs had purchased a number of risky mortgages, those offered at below the prime interest rate as to encourage home ownership, during the housing market peak in 2005 and 2006 and represented a large risk should they fail. At the start of the crisis, the rationalization of the number of these low-interest mortgages disrupted the banking system, causing some larger banks to go into bankruptcy or seek means to avoid this, which disrupted

7896-507: The two companies. Fannie stock plunged. Some worried that Fannie lacked capital and might go bankrupt. Others worried about a government seizure. U.S. Treasury Secretary Henry M. Paulson as well as the White House went on the air to defend the financial soundness of Fannie Mae, in a last-ditch effort to prevent a total financial panic. Fannie and Freddie underpinned the whole U.S. mortgage market. As recently as 2008, Fannie Mae and

7990-446: The wholly public FHA/Ginnie Mae maintained their underwriting standards and instead ceded market share. The growth of private-label securitization and lack of regulation in this part of the market resulted in the oversupply of underpriced housing finance that led, in 2006, to an increasing number of borrowers, often with poor credit, who were unable to pay their mortgages – particularly with adjustable rate mortgage loans (ARM) , caused

8084-465: Was a United States Supreme Court case dealing with the structure of the Federal Housing Finance Agency (FHFA). The case follows on the Court's prior ruling in Seila Law LLC v. Consumer Financial Protection Bureau , which found that the establishing structure of the Consumer Financial Protection Bureau (CFPB), with a single director who could only be removed from office "for cause", violated

8178-442: Was clearly stated in the law that authorizes GSEs, on the securities themselves, and in many public communications issued by Fannie Mae. Neither the certificates nor payments of principal and interest on the certificates were explicitly guaranteed by the United States government. The certificates did not legally constitute a debt or obligation of the United States or any of its agencies or instrumentalities other than Fannie Mae. During

8272-483: Was confirmed to a five year term as director. At the time of his confirmation, the chair of the Senate Banking Committee said that Calabria had committed to working with the Senate toward ending the conservatorship over Fannie Mae and Freddie Mac. In the Supreme Court case Collins v. Yellen , the Supreme Court ruled that, as they had in Seila Law LLC v. Consumer Financial Protection Bureau for

8366-581: Was expected to cost $ 10.8 billion, but was completed at a total cost of $ 6.3 billion in restated earnings as listed in Fannie Mae's Annual Report on Form 10-K. Concerns with business and accounting practices at Fannie Mae predate the scandal itself. On June 15, 2000, the House Banking Subcommittee On Capital Markets, Securities And Government-Sponsored Enterprises held hearings on Fannie Mae. Collins v. Yellen Collins v. Yellen , 594 U.S. ___ (2021),

8460-417: Was first introduced by U.S. Senator Chuck Hagel . The Senate legislation was an effort to reform the existing GSE regulatory structure in light of the recent accounting problems and questionable management actions leading to considerable income restatements by the GSEs. After being reported favorably by the Senate's Committee on Banking, Housing, and Urban Affairs in July 2005, the bill was never considered by

8554-591: Was much larger than was commonly believed. Nassim Taleb wrote in The Black Swan : "The government-sponsored institution Fannie Mae, when I look at its risks, seems to be sitting on a barrel of dynamite, vulnerable to the slightest hiccup. But not to worry: their large staff of scientists deem these events 'unlikely'". On January 26, 2005, the Federal Housing Enterprise Regulatory Reform Act of 2005 (S.190)

8648-400: Was run by a single Director, with James B. Lockhart III , the prior Director of OFHEO, named to the initial position. In September 2008, Lockhart issued an order to bring in Fannie Mae and Freddie Mac under FHFA's authority for the purposes of stabilizing both GSEs using funds allocated by Congress as a means to alleviate the mortgage crisis. As part of this takeover, once the mortgage crisis

8742-516: Was subdued in 2012, the FHFA routed the ongoing profits earned by Fannie Mae and Freddie Mac to the Treasury Department on the basis that these funds were needed to offset the taxpayers' costs of the government's intervention to resolve the crisis. The decision also prevents both GSEs from using Treasury funds to pay their shareholders. Shareholders of both companies challenged the government's actions, stating that these decisions prevent

8836-543: Was that Fannie Mae's enforcement of the underwriting standards they maintained for standard conforming mortgages would also provide safe and stable means of lending to buyers who did not have prime credit. As Daniel Mudd , then president and CEO of Fannie Mae, testified in 2007, instead the agency's underwriting requirements drove business into the arms of the private mortgage industry who marketed aggressive products without regard to future consequences: We also set conservative underwriting standards for loans we finance to ensure

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