Lessons from the jumbo market: absent Freddie Mac, borrower costs and risks would rise
Article Abstract:
The conforming mortgage market would instantly develop the weaknesses found in the jumbo market if it were to operate without the benefits provided by the government-supported charter of Freddie Mac and Fannie Mae. The jumbo market of today is characterized by greater borrowing costs, bigger borrower risk and regional disparities, as compared to the conforming loan market. Although lenders and investors suffer from this environment, it is the borrowers who ultimately bear the brunt of such conditions because they must shoulder the higher mortgage rates found in a less efficient market.
Publication Name: Secondary Mortgage Markets
Subject: Economics
ISSN: 0740-4271
Year: 1996
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No fair! Their capital's lower than mine
Article Abstract:
Freddie Mac and Fannie Mae are some of the lower-capitalized organizations that have low business risks. In the case of Freddie Mac, the 1996 Sendero study showed that the organization has the power to control interest-rate movements despite having low capital-to-assets ratio. Such ability results mainly because the corporation finances its mortgage investment portfolio through long-term and callable debt. Its ability to fund its mortgage assets through mortgage-backed securities also enables Freddie Mac to transfer its interest-rate risk to investors who are bond holders.
Publication Name: Secondary Mortgage Markets
Subject: Economics
ISSN: 0740-4271
Year: 1998
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