| High foreclosure rates across the country as well | | | | and the failure of economic icons such as Bearr |
| as a faltering financial sector has dictated | | | | Stearns, The Goldman Sachs Group, Citigroup Inc. |
| government involvement in the mortgage | | | | and even Freddie Mac and Fannie Mae. Home |
| industry. This involvement has facilitated growth | | | | prices accelerated their descent as foreclosures |
| in both residential and commercial real estate such | | | | increases, jobs were lost and the countries |
| as Minnesota real estate and has created more | | | | financial situation teetered on the brink of disaster. |
| favourable and secure lending situations for | | | | As a result lenders began to employ much |
| financial institutions. All this has been done in | | | | stricter standards for loans. A shell shocked |
| order to stimulate economic growth in the United | | | | lending industry was not equipped to respond to |
| States. | | | | financial failures of this level and they essentially |
| The growth of the federal government's | | | | shut off the flow of money available for loans. |
| involvement since the onset of the mortgage | | | | The federal government was forced to step in to |
| crisis has created a situation in which the | | | | bolster confidence. The Treasury Department |
| government has become a substantial pillar to the | | | | and Federal Reserve were given the authority to |
| survival of the mortgage industry. Government | | | | grant access to low-interest loans and removed |
| has taken on much of the risk formerly assumed | | | | the prohibition on the Federal Reserve to |
| by lenders and has essentially become the | | | | purchase stock in Government Sponsored |
| mortgage market. With the power to set the | | | | Enterprises. Despite these efforts the economy |
| terms that allow mortgages to be approved and | | | | continued on its downward trajectory. |
| their ability to own a proprietary share of many | | | | Currently government involvement has extended |
| companies this government involvement now has | | | | programs to reinvigorate the mortgage industry. |
| the taxpayer shouldering a substantial part of the | | | | There are no longer institutions offering mortgage |
| risk associated with lending in an uncertain | | | | terms that do not require a down payment. But |
| economy. | | | | federal programs are in place that assist with |
| The Federal National Mortgage Association and the | | | | down payments for lower income families as low |
| Federal Home Mortgage Corporation have | | | | as 3% of the home's value. Government |
| operated as government sponsored enterprises. | | | | backed mortgage insurance has made this |
| These institutions are better known publicly as | | | | possible by insuring that lenders are protected in |
| Fannie Mae and Freddie Mac. Although both | | | | the event of default on loans with limited equity in |
| institutions report to their shareholders they are | | | | the home. |
| protected financially and supported by the federal | | | | The federally backed Hope For Homeowners |
| government. These safeguards include a line of | | | | program offers a glimmer of hope for struggling |
| credit through the U.S. Treasury, an exemption | | | | homeowners hoping to avoid foreclosure. The |
| from state and local income taxes as well as an | | | | program allows homeowners to refinance their |
| exemption from the Securities Exchange | | | | home at more favourable terms with a fixed rate |
| Commission (SEC) oversight. Their history has | | | | mortgage backed by the Federal Housing |
| shaped the mortgage industry since the 1930's | | | | Administration (FHA). Lenders have to agree |
| and continued support by the federal government | | | | however to take a substantial loss on their original |
| is essential to restabilising the economy and the | | | | loan but at least are guaranteed a partial pay off |
| housing markets across the U.S.. | | | | and avoid costly foreclosure proceedings. |
| Fannie Mae was created in 1938 as President | | | | The federal government has also extend tax |
| Franklin Roosevelt's New Deal. The creation of | | | | credits to home buyers in order to stimulate |
| the Federal National Mortgage Association was to | | | | growth. The Worker, Homeownership and |
| ensure that mortgages were made more available | | | | Business Assistance Act of 2009 has extended a |
| to lower income families and to facilitate liquidity in | | | | valuable income tax credit. This incentive has |
| the mortgage market. In 1968 the federal | | | | stimulated the housing industry and brought some |
| government converted Fannie Mae to a | | | | hope back to struggling home sellers languishing in |
| shareholder owned corporation in order to | | | | struggling markets. |
| remove its transaction from the federal balance | | | | The Home Affordable Refinance Program is |
| sheet. In order to create a competing the federal | | | | designed provide more affordable loans to existing |
| government formed the Federal Home Loan | | | | mortgage holders in good standing. By providing |
| Mortgage Association in 1970. The idea was that | | | | Freddie Mac and Fannie Mae guaranteed |
| competition would create a more robust | | | | mortgages borrowers can refinance at a more |
| secondary mortgage market. | | | | affordable monthly payment. It is hoped that |
| The way Freddie Mac and Fannie Mae work is | | | | this program will save 3 to 4 million families from |
| that they buy loans from approved mortgage | | | | avoidable foreclosure. |
| sellers. These loans are traded either for cash or | | | | Federal programs now operate as the only means |
| mortgage backed securities which guarantee | | | | to provide a stable loan marketplace. Without |
| payment of principal and interest. Mortgage | | | | federal involvement corporate and personal |
| sellers in turn can either sell or keep the | | | | finances would be crippled by the inability to obtain |
| securities. These companies also bundle | | | | affordable, secure and stable financing. Programs |
| mortgage backed securities from their own | | | | such as Asset Guarantee Program, the Home |
| portfolios to investors in the secondary mortgage | | | | Affordable Modification Program and the |
| market. In order for Fannie Mae and Freddie Mac | | | | Public-Private Investment Program have bridged a |
| to guarantee their mortgage backed securities | | | | period filled with financial uncertainty and have |
| they set the lending terms and guidelines that | | | | allowed provided much needed support to an |
| determine which loan applications can be accepted | | | | industry crippled by its own practices. |
| for purchase. To simplify the role of Freddie | | | | The growth of the federal government's |
| Mac and Fannie Mae is to say that they provide | | | | involvement since the onset of the mortgage |
| financial institutions with the money to provide | | | | crisis has created a situation where the |
| new loans. | | | | government no longer just supports the |
| The 2007 sub-prime mortgage crisis found a lot | | | | mortgage market but rather has become a |
| of low income borrowers some with poor credit | | | | substantial pillar to the survival of the mortgage |
| were unable to pay their mortgages. Almost | | | | industry. The government has taken on much |
| 80% of mortgages issued to the sub-prime | | | | of the risk that was previously assumed by |
| borrowers were adjustable rate mortgages | | | | lenders and has essentially become the mortgage |
| (ARM). With home prices peaking in 2006 home | | | | market. They have the power to set the terms |
| prices began to decline. Values continue to | | | | that allow mortgages to be approved and they |
| decline as these high risk borrowers could no | | | | own a proprietary share of many companies that |
| longer afford their homes due to steep increases | | | | are major players in the mortgage industry. This |
| in the payments of ARM mortgages. | | | | government involvement now has the taxpayer |
| This caused an explosion of foreclosures across | | | | shouldering a substantial part of the risk |
| the country. Again the situation was | | | | associated with lending in an uncertain economy. |
| compounded by problems with the Auto industry | | | | |