Both Fannie Mae and Freddie Mac, known as GSEs (government-sponsored entities), are held in conservatorship by the U.S. Treasury.
This essentially amounts to a federal takeover of the two mortgage giants that dominate the secondary mortgage market.
(“secondary mortgage market” means the GSEs buy loans originated by lenders)
Both entities have been on the receiving ends of massive financial support from we taxpayers (think “bailouts”) in the past few years.
Now, the FHFA (Federal Housing Finance Agency) is requiring the GSEs to reduce (sell off) their loan portfolios in an attempt to reduce taxpayer exposure for additional support.
The FHFA is also stepping in and “sweeping” the entities’ entire profits each quarter vs. the prior practice of requiring them to pay a 10% dividend.
Now, the unanswered question is “what happens to our secondary mortgage market?”
Congress has yet to come up with legislation to answer that question (surprise, surprise ).
Lenders can’t/won’t lend if they don’t have someone who will buy the mortgages they originate.
Source: DSNews.com article
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