X hits on this document





7 / 48

Revisiting the Net Benefits of Freddie Mac and Fannie Mae

insurance providers. Investment and trading in the secondary market support a continuous flow of funds to the primary market and help equalize mortgage rates across the country.5

Approximately five percent of mortgage origina- tions carry some type of federal insurance or guarantee.6 These include loans that are federally insured by the Federal Housing Administration (FHA), guaranteed by the Veterans Affairs (VA), and insured or guaranteed by the Rural Housing Service (RHS), a unit of the U.S. Department of Agriculture—all programs facilitated by Ginnie Mae, the common name of the Govern- ment National Mortgage Association (GNMA), a federal program operated by the U.S. Department of Housing and Urban Development (HUD).

Loans that are not federally insured or guaranteed are called “conventional” mortgages. Conven- tional mortgages are either “conforming loans” (eligible for purchase by Freddie Mac and Fannie Mae) or “jumbo loans” (for amounts that exceed the conforming loan limit).7 Jumbo loans typically account for about 20 percent of the dollar

volume of mortgage originations and usually carry a higher rate of interest than conforming loans.8

Government agencies and private firms with ties to the government are prominent participants in both the primary and secondary residential mortgage markets. Federally insured depository institutions (“depositories”) and their affiliates are the dominant lenders in the primary market. Six of the top ten originators in 2005 were affiliates of banking organizations.9 They accounted for 37 percent of total originations. In the mortgage in- surance/guarantee market, FHA and VA—whose guarantees are fully backed by the U.S. Treasury

  • are very active. In the secondary market, Ginnie

Mae guarantees pools of loans with FHA insur- ance or a VA or RHS guarantee, while Freddie Mac and Fannie Mae primarily securitize conform- ing conventional loans.10 Among conduits, three depository institutions—Washington Mutual, Wells Fargo, and Bank of America—were among the top ten in securitizing jumbo conventional loans in 2005.11


See, for example, Burtis, Higgins, and Miller (2001), Weicher (1994), and Follain and Zorn (1990).


Greenspan and Kennedy (2005). The authors estimate the flow of originations from changes in regular single- family home mortgage debt (that is, debt other than home equity and construction loans used only to purchase or refinance a home) in the year 2004.


As of January 1, 2006, this limit is $417,000 for one-family homes (higher limits apply in Alaska, Hawaii, Guam and the U.S. Virgin Islands). The limit is reviewed and may be increased each year by the Office of Federal Housing Enterprise Oversight, based on a survey of single-family home purchase prices conducted by the Federal Housing Finance Board.


McKenzie (2002).


Inside Mortgage Finance Publications (2006), 45.


The GSEs also may purchase and securitize FHA, VA, and RHS loans. A primary reason why their volume remains small is because Ginnie Mae, by virtue of the explicit guarantee of the federal government, has lower yields. Using OFHEO reports (2005, 27 and 43), we calculated that less than 1 percent of GSE purchases are FHA, VA, or RHS loans.


Inside Mortgage Finance Publications, Inc. (2006), 173.

Today’s Mortgage Markets



Document info
Document views158
Page views158
Page last viewedFri Jan 20 06:42:20 UTC 2017