Secondary Mortgage Market: The past and the present

The year 2008 market a crisis fir the US economy as its housing market had collapsed. This economic collapse made everyone familiar with the secondary mortgage market. It was concealed and the general has no idea it existed and when brought upfront made people realize that it was the most important for them, especially, crucial to the mortgage lenders, secondary market participants and appraisers. Then all of a sudden, with the well-publicized issues surrounding the housing collapse of 2008, Fannie Mae and Freddie Mac and some of their larger clients and the big lenders became household names. Read on to learn about the history of Fannie Mae and what it means for appraisers.

Secondary mortgage market:

The secondary mortgage market is defined in The Dictionary of Real Estate Appraisal, Sixth Edition as “a market created by government and private agencies for the purpose and sale of existing mortgages, which provides greater liquidity for mortgages. Fannie Mae, Freddie Mac, and Ginnie Mae are the principal operators in the secondary mortgage market.”

History of Fannie Mae

The Federal National Mortgage Association or Fannie Mae was founded in 1938, which happens to be a government sponsored enterprise. In the US, during the 1900s most house loans were short term mortgages, due to the great depression people lost their jobs and were unable to make their payments. As a result of this almost 25% of US home owners lost their homes to the state, which is how Fannie Mae was founded. A secondary mortgage market was formed which allowed banks to give loans to the people, primarily by buying FHA mortgages. Then that mortgage would be sold to Fannie Mae, and more cash would come to the lender, and they could issue more mortgages.
Fannie Mae was acquired by Housing and Home Finance Agency in 1950. Then in 1968, it was split into two entities: Fannie Mae (which we know today) and Ginnie Mae (which is the Government National Mortgage Association). One of the differences between Fannie Mae and Ginnie Mae is that Fannie Mae and Freddie Mac actually purchase mortgages and issue mortgage-backed securities; Ginnie Mae does not purchase mortgages, and they do not issue mortgage-backed securities. Ginnie Mae guarantees returns on mortgage-backed securities that are issued by approved issuers of securities that are backed by government loans, such as FHA and VA.
Fannie Mae is a private shareholder corporation. Again, it purchases mortgages and sells them to investors (mortgage-backed securities). As you may know, Fannie Mae was taken into government conservator-ship along with Freddie Mac in 2008.
Things have not been smooth for Fannie Mae. In 2004, they were under fire for their unusual accounting practices. In 2006, it was to make a payment to around 1 billion dollars just for the sake of internal auditing. 2008, the year of great controversy saw the downfall of US economy and a takeover of Fannie Mae was being discussed. As a result of the housing and credit crisis, they were insolvent; they were taken into government conservator-ship, basically bailed out by the taxpayers. Fannie Mae and Freddie Mac’s long-term future is uncertain. There’s been talk about possibly replacing them or winding them down or making them government agencies. Many different plans have been floated; none have gained traction.
Fannie Mae and Freddie Mac stand behind over 50% of outstanding residential mortgages. They’re regulated by the Federal Housing Finance Agency (FHFA), which was specifically created to oversee them. Fannie Mae and Freddie Mac are often collectively referred to as the GSEs. GSE stands for government-sponsored enterprise, which is what Fannie and Freddie are.

What’s the significance of Fannie Mae for appraisers?

Both Fannie Mae and Freddie Mac did great things for appraisers by creating the most famous appraisal report forms. The also issued guideline, procedures and requirements for appraisers working in the real estate. These forms issued by them have now become a standard and is followed by everyone in the country. Even people not working with these organizations often request the appraisers to meet the requirements set by Fannie Mae and Freddie Mac